Securities Firms Lock Down Collateral Loans but Some Engage in 'Interest Rate Competition' to Attract Customers

Increase in Debt Investment Raises Credit Limit Concerns
Collateral Loans Halted but
Margin Loans for Stock Trading Maintained
Even Interest Rate Reduction Marketing Implemented

[Asia Economy Reporter Oh Ju-yeon] As individual 'debt investment (borrowing money to invest in stocks)' has surged significantly, securities firms' credit lending limits are reaching their maximum. Since the credit lending limit of securities firms cannot exceed 100% of their equity capital, they are currently adjusting the limits by halting new loans. While locking down to reduce risks, they are also competing to lower credit lending interest rates.

According to the financial investment industry on the 14th, Samsung Securities and KB Securities temporarily suspended pledged securities collateral loans at the end of last month. Earlier, Mirae Asset Daewoo and Korea Investment & Securities also stopped pledged securities collateral loans for a while to manage their credit lending limits. Although the limits vary by securities firm, the credit lending limits of each firm have been fully utilized due to the surge in individual debt investment. However, most firms have only blocked pledged securities loans, while margin trading loans are still ongoing.

Margin trading loans require that the borrowed money be used strictly for stock purchases, but pledged securities collateral loans can be borrowed for purposes other than stock purchases. While the full utilization of credit lending limits is an issue, contrary to securities firms' explanations that this is to reduce individual investors' risks, loans for stock investment remain open. Margin trading loans require paying high interest rates, and if stock prices fall, investors face the double burden of forced liquidation. If the goal is to block individual risks, it would be appropriate to restrict margin trading loans first, but critics point out that only the loan channels that can be used for purposes other than stocks have been blocked. On the contrary, some are even marketing by lowering credit lending interest rates to attract customers.

One securities firm is offering discounted credit loan interest rates to new and dormant customers who open non-face-to-face accounts. The average interest rates for credit loans and stock collateral loans at securities firms reach 6-7% annually, but they explain that they reduce this to 3.99%. Depending on conditions, they provide up to an additional 1 percentage point discount and also offer gift certificates as part of the credit and loan product promotions.

The reason securities firms attract credit loan customers while managing credit lending limits is clearly profit. There are even remarks that securities firms are enjoying interest income feasts from individuals' debt. According to the Financial Supervisory Service's financial statistics information system, in the first quarter, the total interest income from credit lending of 56 securities firms nationwide was 387.916 billion KRW. This is a 2.12% increase from 378.976 billion KRW in the fourth quarter of last year. The earnings for the second quarter of this year are expected to far exceed this. Korea Investment & Securities, NH Investment & Securities, Mirae Asset Daewoo, and others, which announced their second-quarter results, reported interest income exceeding 100 billion KRW.

Interest income from credit lending by securities firms has been increasing every year. It nearly doubled from 684 billion KRW in 2013 to 1.164 trillion KRW in 2015. Last year, it reached 1.618 trillion KRW.

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