'Base Rate↑' Securities Firms Move to Raise Margin Loan Interest Rates... Debt Investment Expected to Decrease

The era of near 0% interest rates that began after the COVID-19 crisis has come to an end after 1 year and 8 months. On the 25th, the Monetary Policy Committee of the Bank of Korea held a meeting to decide on monetary policy direction and raised the base interest rate by 0.25 percentage points from 0.75% to 1%. The photo shows a loan-related notice posted on the exterior wall of a bank in downtown Seoul on the same day. Photo by Moon Honam munonam@

[Asia Economy Reporter Lee Seon-ae] Following the Bank of Korea's base interest rate hike, some securities firms are raising the interest rates on margin trading (where securities firms lend funds to customers for stock purchases), drawing attention to the outcome. Amid the recent stock market correction phase, there is an expectation that 'debt investment' (borrowing to invest) will decrease as individual investors' disappointment grows.

According to a disclosure by the Korea Financial Investment Association on the 28th, DB Financial Investment decided to raise margin loan interest rates starting December 1. For loan periods of 1 to 7 days, the interest rate will increase by 0.3 percentage points from the existing 5.2% to 5.5%. For 8 to 15 days, the rate will rise from 6.2% to 6.5%, for 16 to 30 days from 7.2% to 7.5%, and for 31 to 60 days from 8.0% to 8.3%, each increasing by 0.3 percentage points.

DB Financial Investment explained, "The margin loan interest rate was raised in response to the rise in the average daily rate of the 91-day CD (Certificate of Deposit), which is the base interest rate."

Other securities firms are also expected to weigh interest rate hikes. However, it is understood that more firms have not yet planned to raise margin loan interest rates.

Securities firms set margin loan interest rates based on base rates such as CDs or commercial paper (CP) rates, adding a spread. Most firms manage margin loan rates by adjusting the spread rather than immediately reflecting changes in the base rate in the margin loan interest rate. A securities firm official said, "Even if the base rate changes, most companies will operate interest rates by adjusting the spread." Another official said, "Since the funding rate is not directly linked to the base rate, there is no need to raise margin loan interest rates," adding, "They will not raise rates for the time being."

However, there is an opinion that the increase in margin loan interest rates by securities firms is only a matter of time. Professor Kim Young-ik of Sogang University Graduate School of Economics said, "Even if securities firms do not adjust margin loan interest rates immediately, they will inevitably raise them soon as funding costs increase," adding, "In a situation where disappointment in the stock market has already increased recently, the number of investors willing to borrow on margin to invest will significantly decrease."

According to the Korea Financial Investment Association, the outstanding balance of margin loans was 23.57 trillion won as of the 24th of this month. Although this is lower than the record high of 25.65 trillion won in September this year, it is still about 20% higher than the 19.2 trillion won at the end of last year. The total interest income earned by 28 domestic securities firms from individual investors' margin trading through the third quarter of this year reached 1.3432 trillion won, double the 655.4 billion won recorded in the same period last year.

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