Interest Rate Hike, 'Debt Investment' Facing Difficulties

On the 26th, the KOSPI opened at 3,151.30, up 4.49 points (0.14%) from the previous trading day, at the Hana Bank dealing room in Jung-gu, Seoul. On the same day, the won-dollar exchange rate opened at 1,165.0 won, down 3.1 won from the previous trading day. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Junho Hwang] As the Bank of Korea raises the base interest rate, the interest burden on individual investors' 'Bitt'u' (borrowing to invest) is expected to increase. Recently, the stock market has been supported by individual investors' net buying amid foreign investors' continuous selling, but the impact of the rate hike is expected to be a significant variable.

According to the financial investment industry on the 29th, since the base rate hike on the 26th, several securities firms are reviewing whether to raise interest rates on margin loans (where securities firms lend customers funds to purchase stocks). Most securities firms set margin loan interest rates based on the rates of certificates of deposit (CD) or commercial paper (CP) plus an additional spread. However, the 91-day CD rate rose by 25 basis points (0.25 percentage points) to an annual 0.92% following the Bank of Korea's rate hike on the 26th.

However, securities firms are expected to raise rates after monitoring market interest rate hikes, considering the impact on investors. According to Samsung Securities, the interest cost burden on individual and household margin loan transactions currently reaches a record high of 1.8 trillion won.

In particular, securities firms are already earning substantial interest income from record-high Bitt'u. The outstanding balance of margin loans surged to a historic high of 25.6112 trillion won on the 18th but slightly decreased to 24.4574 trillion won as of the 26th. This appears to be due to Korean Investment & Securities, NH Investment & Securities, and others temporarily suspending securities-backed loans after exhausting their margin loan limits. Subsequently, 28 domestic securities firms earned a total interest income of about 852.4 billion won from individual margin loan transactions in the first half of this year. This is 2.34 times the 364 billion won earned during the same period last year.

Kim Yong-gu, a researcher at Samsung Securities, said, "In an environment where new and additional borrowing restrictions accompany rising interest rates, a contraction in margin loan transactions is inevitable," adding, "This is why special caution is needed for the top margin trading stocks." However, he added, "If domestic and external economic slowdowns and financial tightening lead to a reversal in internal credit spreads, the money movement phenomenon in individual and household stock markets may be limited to a fleeting breeze."

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