"Tightening Loan Restrictions" Debt Restructuring, Liquidity Absorption... Stock and Cryptocurrency Markets Hit

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] As financial authorities focus on policies to curb excessive loan demand, known as debt restructuring, to stabilize the housing market, negative repercussions are spreading to the stock and cryptocurrency markets. Debt restructuring involves raising interest rates and reducing loan limits to absorb excessive liquidity in the market, so some level of shock is inevitable. However, investment opportunities are expected to be found even amid this crisis. Accordingly, while the biggest variable in the real estate market is emerging as whether there will be a policy shift due to political intervention rather than economic or supply-demand factors, the stock and cryptocurrency markets are also closely monitoring the government's debt restructuring policies.

According to the Korea Financial Investment Association on the 14th, customer deposits in the stock market, which had only increased, reversed to a declining trend from September 2021 due to the impact of the government's debt restructuring. Deposits, which exceeded 70 trillion won in early October, fell to around 64.6 trillion won as of the 10th of this month. In November, the individual trading volume in the domestic stock market (KOSPI + KOSDAQ) was 17.3 trillion won, down 16% compared to the average this year. Seoyoungsoo, Head of Finance Research at Kiwoom Securities, interpreted, "Overall household debt restructuring is having a certain level of impact on the stock market."

The cryptocurrency market has also been affected. As monetary authorities worldwide unleashed unprecedented amounts of money under the pretext of the COVID-19 crisis, a backlash led to a surge not only in the stock market but also in cryptocurrencies such as Bitcoin. In other words, as the value of money declined, demand for alternative investment assets increased. This means that the financial authorities' debt restructuring, i.e., liquidity reduction policies, could act as a factor causing a decline in the value of these alternative assets.

Notably, the high volatility of cryptocurrency prices means that the risk of losses during sharp price fluctuations is relatively high. On the other hand, since many people in their 20s and 30s invest using credit loans, it could potentially trigger household loan defaults beyond mere investment losses. In fact, based on Upbit, where over 80% of coin trading volume occurs, the share of the 20s and 30s age group reached 60% this year. Furthermore, this age group has been the biggest beneficiary of the government's loan expansion policies, with loans exceeding 100 million won increasing by more than 50% on a net basis. From January 2022, the Debt Service Ratio (DSR) regulation applies to loans over 200 million won, and from July, it will apply to loans over 100 million won. Researcher Seo said, "Considering that credit loans are the most affected by DSR, the tightening of regulations is expected to have a certain level of impact on the cryptocurrency market and, further, the stock market," emphasizing, "This is why stock and cryptocurrency investors should closely watch the government's debt restructuring policies going forward."

However, experts believe that investment opportunities can be identified in the banking sector. If the policy focus on debt restructuring is maintained, the gradual downward stabilization trend in the housing market is likely to continue. Under an environment where bank-led debt restructuring continues rather than government-led, bank stocks are expected to maintain relative strength. This is because bank-led debt restructuring is expected to proceed, and despite slower growth, stable profits will be realized through securing appropriate interest margins. With regulatory changes focusing on consumer protection and financial stability easing competition among financial companies and continuing the trend of increasing low-cost deposits, new interest rate spreads on loans and deposits may decline to some extent, but banks can still benefit from the base rate hikes. Additionally, as bank-led debt restructuring progresses, banks can pass on increasing restructuring costs to prices and fees to some extent. Following interest rate hikes on household loans, loan limit reductions, and expanded principal and interest installment repayments, restructuring costs may increase significantly with the end of maturity extensions and principal and interest repayment deferrals for corporations in March 2022.

Kiwoom Securities researcher Lee Jaeseok said, "While rising real estate prices may be favorable to bank earnings in the short term, if the capital burden and debt risk from excessive asset growth approach excessive levels, further real estate price increases will no longer be positive for the stock prices of the banking and financial sectors," adding, "Rather, when risks are reduced through debt restructuring and capital strength is enhanced, improving earnings stability and raising expectations for dividend increases, stock prices will be revalued."

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