This trend is raising concerns about the growing role of non-bank lenders.
Personal insolvencies have sharply increased across the country, with 12,257 people declaring bankruptcy in the most recent financial year. This figure represents a 5.3% rise compared to the previous year. Many of these bankruptcies are linked to unaffordable personal loans and car finance agreements arranged through loosely regulated lenders that are taking over from traditional banks in this sector.
As major banks step back from lending to higher-risk customers under tighter regulatory scrutiny, more Australians are relying on alternative credit providers. However, regulators are worried about this shift into less supervised markets. These non-bank lenders often focus on vulnerable borrowers using aggressive tactics, high fees and complicated loan structures. In many cases, the debts leading to bankruptcy are under $50,000 and frequently relate to cars or personal borrowing.
Authorities caution that this upward trend could continue until 2027, when annual bankruptcies may rise to nearly 13,750 cases. Data from financial regulators shows that around 20% of bankrupt individuals hold almost no assets, underscoring a weak financial foundation. Debtors in this group are also more likely to have used buy now pay later products or taken loans from subprime lenders.
Although the major banks have avoided significant losses due to strong regulatory controls, the rise in insolvency cases indicates mounting pressure in other parts of the financial system. Last year witnessed 14,722 company bankruptcies, the highest number on record. Despite this, the combined profit of banks held steady at almost $30 billion, with reported loan losses kept below 0.15% for most institutions.
Regulators are now keeping a close watch on the non-bank lending sector, where some private credit funds have started shifting bad loans into private equity or property development. This allows them to bypass regulations that govern traditional banks. The concern is that significant financial risk is developing outside of the balance sheets of Australia’s major banks.
