As the KOSPI index surpasses 8,000, individual investors are increasingly engaging in debt-fueled investments. Last month, credit loans across the financial sector reversed a six-month decline, and in just three business days this month, nearly 1 trillion won was added. While financial authorities are closely monitoring the market's overheating, they face a dilemma due to existing high-interest burdens and current lending regulations.
According to the financial sector on June 7, the total balance of personal credit loans from the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) reached 104.9 trillion won at the end of last month, an increase of 2.1 trillion won from the previous month’s 102.8 trillion won. The overall balance of credit loans in the financial sector had been decreasing since December last year, with declines of 1.1 trillion won in January, 1 trillion won in February, 200 billion won in March, and 800 billion won in April.
However, demand for debt investment surged last month as the KOSPI reached 8,000, leading to a sharp increase in credit loans, particularly from banks. As of June 4, the balance of personal credit loans at the five major banks rose by 989.4 billion won compared to the end of the previous month, with nearly 1 trillion won flowing into the market through credit loans in just three business days.
The balance of overdraft accounts (credit limit loans) also reached its highest level in over three years, surpassing the end of December 2022's 42.05 trillion won. This increase is attributed to more investors utilizing previously unused credit limits for actual investment funds.
Typically, the balance of overdraft accounts decreases around the 25th of each month when many companies pay salaries. However, in May, the balance increased from 41.28 trillion won on the 21st to 41.93 trillion won on the 28th. This suggests that borrowers are choosing to take on additional debt to invest in the stock market rather than repaying existing loans with their salaries.
Financial authorities are monitoring the signs of overheating in the stock market but are hesitant to tighten lending standards further. The government had already limited credit loan amounts to 100% of a borrower's annual income to prevent housing purchases using credit loans during the June 27 regulations last year. Additionally, the implementation of a three-tiered total debt service ratio (DSR) and high-interest rates have increased the burden on borrowers. Raising lending thresholds uniformly could adversely affect those in need of living or emergency funds.
Financial authorities are currently observing the recent increase in credit loans. Following signs of overheating in newly launched single-stock leveraged exchange-traded funds (ETFs) from Samsung Electronics and SK Hynix, the Financial Services Commission convened a meeting with industry stakeholders on June 5 to assess the situation. The Financial Supervisory Service has also begun inspections on Mirae Asset Securities, which sold SpaceX IPO shares, to check for any instances of improper sales or misleading advertising.
A financial sector official noted, "In a bullish market, credit loans tend to flow rapidly into investment funds," but cautioned that using leverage for investments can lead to increased losses and interest burdens when the market adjusts.
* This article has been translated by AI.
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