As Korea's stock market has risen sharply in recent days, stock loans—borrowing funds with held shares as collateral—are also increasing quickly. As securities firms exhaust their credit transaction loan limits one after another, individual investors seeking additional funds are turning to stock loans. Stock loans can fuel investment fervor in a rising market, but when the market falls, they can come back as a "forced-selling bomb."
A stock loan is a structure in which the securities firm that the investor uses partners with secondary financial institutions such as capital companies and savings banks, or with other securities firms or online investment-linked finance (P2P) companies, to connect a loan, and it is also called "linked credit." Typically, loans are available up to a maximum of three times the collateral value, with interest rates around 8%–10% per year.
According to the Financial Supervisory Service on the 28th, the stock loan balance was tallied at around 1.6 trillion won as of the end of January this year. On a month-end basis, it is the highest since the end of 2022, when it was 1.8 trillion won. It appears to have expanded as stock transaction value increased and individual investors' risk appetite strengthened.
The increase is particularly notable in the P2P sector. As P2P firms saw their revenue base shrink due to tighter regulations on real estate project financing (PF), they turned to stock loans. According to the central record-keeping agency for online investment-linked finance, among P2P loan balances, other collateralized loans—of which stock loans account for more than 90%—rose from 401.8 billion won in June last year, when the KOSPI topped 3,000, to 880.1 billion won in April.
Behind the rapid spread of stock loans is a relatively low regulatory threshold. Credit transactions at securities firms are only possible within 100% of their equity capital. In contrast, stock loans can continue even if a securities firm's limit is blocked because external companies such as savings banks, capital companies, and P2P providers supply the funds. The lending conditions are not strict. Some products are accessible with just being 20 or older and having collateral of at least 1 million won, making the entry requirements loose.
For stock loans, if the collateral maintenance ratio typically falls below 120%–140%, the collateral shares are forcibly disposed of. If the value of the collateral shares falls below the threshold due to a sharp drop in share prices, the financial company sells the collateral shares on the market to recover the loan. In a downturn, if such sell orders hit the market all at once, they can deepen the decline.
Financial industry officials warn that while stock loans can be fuel for a rally in the short term, they can amplify market anxiety during a correction. The Financial Supervisory Service said, "With the recent stock market boom, cases of using stock loans to raise investment funds for stock trading have increased. Caution is needed regarding the potential for losses to widen due to forced selling in the event of a sharp drop in share prices."