Korean individual investors increased margin trading in Korean stocks to the highest level since the COVID-19 pandemic, prompting the Bank of Korea to warn of potential financial instability. As of April end, the ratio of margin loans and leveraged exchange-traded funds to KOSPI market capitalization reached 0.80%, surpassing the 0.76% recorded in October 2020 during COVID-19, according to the Bank of Korea on July 5. Investors are borrowing funds seeking returns above loan interest rates as stock prices rise. The Bank of Korea classifies this ratio as 'high-risk investment' and stated in a written response to lawmaker Park Seong-hoon that the expansion of leverage investment could become a factor for financial instability.
Margin Loan Balance Reaches Record Highs in June
Margin loan balances increased rapidly in recent months. As of June 2, the margin loan balance stood at 37.7187 trillion won, rising approximately 400 billion won in just two trading days this month, according to the Korea Financial Investment Association. The balance first exceeded 38 trillion won on May 29. On June 24, it reached a record high of 38.6328 trillion won.
Bank Credit Usage Shifts to Existing Minus Accounts
Credit loan patterns at major banks showed similar trends. As of June 2, the total credit loan balance at the top five banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) reached 109.1648 trillion won, up 494.4 billion won from the month-end figure of 108.6704 trillion won, according to the financial sector. Most of the increase occurred in minus accounts (overdraft facilities). Minus account balances rose from 43.2812 trillion won at month-end to 43.7742 trillion won on June 2, an increase of 493 billion won — averaging approximately 250 billion won per day. Regular credit loan balances increased only 1.5 billion won during the same period, from 65.3892 trillion won to 65.3907 trillion won. The shift reflects investors utilizing existing credit lines after banks tightened new credit loan approvals and minus account openings to curb debt-funded investment. The minus account utilization rate (amount used / maximum limit set) at the five banks rose from an average of 44.8% at month-end to 45.2% on June 2, a 0.5 percentage point increase. Some banks recorded all-time highs, and most reached the highest levels since 2021 during COVID-19.
Demand Deposits Drop 18 Trillion Won in Two Days
Demand deposits, which represent standby investment funds, decreased sharply. Demand deposit balances at the five banks fell to 704.2854 trillion won on June 2, down 18.0074 trillion won from month-end — an average outflow of approximately 9 trillion won per day. Industry observers note that as KOSPI dropped sharply on June 1-2, individual investors may have withdrawn standby funds to deploy capital into the market.
Bank of Korea Warns of Investor Loss Risk
The Bank of Korea expressed concern about the side effects of excessive borrowing for short-term gains. In the written response to lawmaker Park Seong-hoon, the Bank of Korea stated that recent sharp stock price increases are based on solid fundamentals such as strong corporate earnings centered on semiconductors, but the increase in individual leverage investment including margin loans also appears to have contributed to some extent. The Bank of Korea noted that the price-to-earnings ratio (PER) fell from 10.0 times at year-end to 8.0 times on June 23, indicating stock prices have not fully caught up with earnings. The Bank of Korea warned that if stock prices undergo significant corrections, losses for margin loan and leveraged ETF investors could expand, and increased forced selling and redemptions could amplify market volatility and affect other investors. The Bank of Korea stated it will closely coordinate with relevant authorities to prevent trading concentration and leverage expansion from leading to financial instability.
FAQ
What is the current margin loan ratio in Korean stocks?
As of April end, the ratio of margin loans and leveraged ETFs to KOSPI market capitalization reached 0.80%, the highest level since October 2020 during COVID-19 when it was 0.76%, according to the Bank of Korea.
How much did margin loan balances increase in June?
Margin loan balances stood at 37.7187 trillion won as of June 2, rising approximately 400 billion won in two trading days, and reached a record high of 38.6328 trillion won on June 24, according to the Korea Financial Investment Association.
Why is the Bank of Korea concerned about margin trading?
The Bank of Korea warned in a written response to lawmaker Park Seong-hoon that the expansion of leverage investment could become a factor for financial instability, as significant stock price corrections could cause large investor losses and increase market volatility through forced selling.
