Colonial First State, Australia’s biggest asset manager, froze an A$850m ($785 million) mortgage income fund to withdrawals after signs some of the commercial property loans may sour.

The Sydney-based fund manager, owned by Commonwealth Bank of Australia, told investors in the Colonial First State Mortgage Income Fund last week that a “small number” of mortgages had the potential to become bad debts, said Matthew Coleman, a Colonial spokesman.

'When you see these sorts of things happen, it shakes confidence,' said Stephen Maher, head of debt markets research at Macquarie Group Ltd. 'They need to let unit holders know what’s happening, and then provide a way for people to exit if they need to. I don’t think anyone believes all the problems in property and lending have been resolved.'