Even though the interest rate for margin loans that securities firms lend to investors has stayed at around 9% annually despite a rate cut in May, "debt investing (investing with borrowed money)" is rising quickly. As the stock market continues its rally despite the heavy interest burden, investors are using leveraged trades to seek returns that beat the interest rate. Securities firms are expecting solid interest revenue.
According to the Korea Financial Investment Association on the 3rd, as of the 1st, the balance of margin loans in the domestic market was 23.3458 trillion won. That is close to the all-time high of 25.6540 trillion won set in 2021, when there was an investment boom due to COVID-19.
A margin loan is investment capital that a securities firm lends to individuals, and investors seeking leverage pay interest to borrow money. Interest rates vary by securities firm and loan period, but on average a high rate of up to the 9% range per year is being applied.
Korea Investment & Securities applies an interest rate of 4.9% for 1–7 days on margin trades, 8.5% for 8–15 days, and charges 9.3% interest for 16 days or more. Kiwoom Securities, which has the largest number of MTS users, imposes 5.4% for 1–7 days, 7.7% for 8–15 days, 8.5% for 16–90 days, and 9.1% for more than 90 days.
Despite interest higher than market rates, investors are quickly expanding the scale of margin loans. The total scale of margin loans stayed around 15 trillion won in January this year, but it rose rapidly after the stock market began to climb in April. It reached 15.5329 trillion won in May, 18.3463 trillion won in June, and 20.8795 trillion won in July, and increased to 21.7699 trillion won in August. In September, it hit 23.4928 trillion won, with margin loans increasing by an average of 2–3 trillion won per month. That means investors are borrowing more than 1 trillion won every month to invest in stocks.
Accordingly, securities firms' interest revenue appears set to increase. In addition to interest on margin loans, more transactions using loan funds are expected to generate side effects such as trading fees.
A source in the securities industry said, "As the scale of margin loans climbs steeply, interest revenue is also increasing," but added, "However, the size of interest revenue is not so large as to be called profiteering."
Some securities firms have cut margin loan interest as a promotional event to capture the growing cohort of debt-fueled investors. Hana Securities recently lowered margin loan interest by 1–2 percentage points by bracket, reflecting the rate cut in May. Shinhan Investment & Securities and Woori Investment & Securities are running promotions applying a preferred interest rate in the 3% range for some investors. Kyobo Securities also launched a preferred-rate margin trading event from the end of last month through the end of this year.
A securities industry source said, "Some securities firms are running events that lower margin loan interest rates along with stock trading fees, and competition is emerging as other securities firms join," adding, "However, rather than lowering the disclosed interest rate, these are staying as short-term events."