Credit Loans Surpass 14 Trillion Won for the First Time... Securities Firms Grapple with Limit Increases

[Asia Economy Reporter Koh Hyung-kwang] Since the outbreak of the novel coronavirus infection (COVID-19), the investment enthusiasm of the 'Donghak Ants' has intensified, and the amount of money borrowed from securities firms to buy stocks has surpassed 14 trillion won for the first time ever. Due to the increase in 'debt investment' (borrowing money to invest in stocks), major securities firms have exhausted their loan funds and have even suspended credit lending.

According to the Korea Financial Investment Association on the 28th, the balance of margin loans in the domestic securities market reached a record high of 14.0496 trillion won as of the 24th. It increased by more than 1 trillion won again just 14 days after surpassing 13 trillion won for the first time on the 10th. By market, margin loans in the KOSPI market amounted to 6.7421 trillion won, and margin loans in the KOSDAQ market totaled 7.3074 trillion won.

Margin loans refer to investors borrowing money from securities firms by providing collateral to buy stocks. They are mainly used by individuals, and the balance of margin loans usually increases when stock prices are expected to rise. The annualized interest rate ranges from about 4% to 9%.

The scale of margin loans fluctuated sharply like a roller coaster since March. The margin loan balance, which hovered around 9 to 10 trillion won at the beginning of this year, began to decrease in March and sharply dropped to the 6 trillion won level by the end of March. This was due to 'forced liquidation' triggered by the KOSPI plunging more than 30% over two weeks from March 5 to 19. Forced liquidation occurs when securities firms, holding the stocks of investors who borrowed money as collateral, sell the stocks on the market at their discretion if the investors fail to repay the loan. However, since the end of March, as the KOSPI started to rise, the scale of debt investment quickly increased again, surpassing 12 trillion won on the 15th of last month.

The recent rapid increase in debt investment is because more ants are betting on stock price rises. Typically, when stock prices are expected to rise, the number of individual investors aggressively investing by borrowing money increases. The low-interest-rate environment also played a role. A securities firm official explained, "Since short selling is banned, individual investors have high expectations for stock price increases," adding, "Leveraged investments using debt have significantly increased, especially in pharmaceutical and bio stocks and non-face-to-face related stocks that have recently led the upward trend."

Most individual debt investments have concentrated on pharmaceutical, bio, and non-face-to-face (untact) related stocks. Over the past four months, the stock with the largest increase in margin loans in the KOSPI market was Celltrion, with an increase of 208.3 billion won during this period. SK (152.2 billion won), Bukwang Pharmaceutical (111.5 billion won), Kakao (114.8 billion won), and Naver (96.6 billion won) also saw margin loans increase by around 100 billion won. In the KOSDAQ market, margin loans were concentrated on bio stocks such as Celltrion Healthcare (216.6 billion won), Seegene (137.8 billion won), and Celltrion Pharm (77.8 billion won).

Due to the increase in debt investment, securities firms suspending margin loans are appearing one after another. Samsung Securities announced the suspension of margin loans on its website on the 22nd. Samsung Securities explained, "The credit lending limit has been exhausted, so margin loans and securities-backed loans will be unavailable for the time being," adding, "We will provide guidance again when the service can be offered according to relevant laws." The relevant law mentioned by Samsung Securities is the Capital Markets Act, which limits the credit lending limit of comprehensive financial investment business operators with more than 3 trillion won in equity capital to within 200% of their equity capital (100% is limited to credit lending related to small and medium enterprises and corporate finance).

For the same reason, KB Securities also suspended securities-backed loans from the 22nd, and Korea Investment & Securities had already suspended securities-backed loans since the 24th of last month. Mirae Asset Daewoo temporarily halted securities-backed loans from the 1st to the 14th. Since credit lending is also part of the revenue source for securities firms, they are seeking to expand credit lending by raising margin loan collateral ratios and diversifying margin loan funding sources. A securities firm official said, "Due to the unprecedented increase in margin loans caused by movements like the Donghak Ants, most securities firms have reached their loan limits," adding, "Each securities firm is likely considering ways to proactively increase their limits."

This content was produced with the assistance of AI translation services.