As demand for investment using credit loans, including overdraft accounts, has increased, household lending growth is once again accelerating. (Photo = Solnews AI image generated by GPT)
The stock market is swinging wildly, yet “debt-driven investing” is rising again. It means investing with borrowed money. The balance of bank overdraft accounts has surged to the highest level in 3 years and 8 months.
The personal overdraft balance at the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) stood at 43.3363 trillion won as of the 25th. On a month-end basis, this is the largest amount since October 2022. It has increased by more than 1 trillion won for two consecutive months, rising by 1.865 trillion won in May and 1.8039 trillion won in June.
Total personal credit loans, including overdraft accounts, also reached 108.7272 trillion won on the same day, the most in three years. The increase in June was 2.2118 trillion won, the largest in 5 years and 2 months.
◆ Overdraft balances hit 43 trillion won as debt-driven investing heats up again
The utilization rate says it all. It is the ratio of actual usage to the credit limit. The average utilization rate at the five major banks was 44.8% as of the 25th. Out of a total credit limit of 96.7469 trillion won, about 43 trillion won had actually been drawn. This is the highest level since the COVID-19 pandemic.
One bank hit an all-time high. The other four also reached their highest levels since 2021.
The financial sector sees the stock market trend as the background. As the KOSPI has repeatedly plunged and rebounded, individual investors looking to buy on dips have turned to overdraft accounts, according to analysts. Rather than taking out new loans, they are using overdrafts they had already opened as short-term firepower. “More cases are appearing of investors raising funds through overdraft accounts they had already set up,” said an official at a commercial bank. “Short-term leverage demand is clearly reviving.”
The problem is that this heat does not cool down. Whenever the stock market shakes, the balance instead keeps rising.
◆ Overdrafts have no forced selling… which can make them even riskier
Credit loans from securities firms are different. If the maintenance margin ratio falls below the required threshold, the brokerage forcibly sells the held stocks. That is a margin call. The losses hurt, but the debt is settled at that point.
Bank overdrafts are unsecured loans. Securities firms’ credit trading guides also spell out this difference. They state that bank credit loans are recovered through civil execution procedures, while securities credit trading is immediately recovered through forced selling once the collateral ratio collapses.
No forced selling does not mean it is safe. It only means no warning alarm sounds. Even if shares fall, as long as credit remains, investors can keep averaging down. That is how losses grow larger.
The cost is also heavy. Overdraft interest rates are typically 0.5 to 1 percentage point higher than ordinary credit loans. Interest accrues on the amount used, and that interest is then added back onto the principal.
Maturity is another variable. Overdraft accounts are usually renewed every year. If a sharp stock decline lowers a borrower’s credit score, the bank may refuse renewal or reduce the credit limit. The structure creates pressure to repay immediately while stocks remain locked up.
The stock market may recover, but only the account balance and the debt remain. That is the most common ending of debt-driven investing.
◆ Regulations alone cannot stop it… experts explain how to survive debt-driven investing
The authorities have also moved. Last week, the Financial Supervisory Service urgently summoned chief risk officers (CROs) from the 10 major securities firms. The reason was that margin loan balances were setting new record highs every month. Last month, the daily average margin loan balance soared to 36.3 trillion won. The scale of forced selling also averaged 37.3 billion won per day, more than three times a year earlier.
Kim Seo-jin, acting senior deputy governor of the Financial Supervisory Service, said, “We need to move away from mechanical risk management bound by regulations,” and directly called for investor protection. He urged firms to refrain from sales practices that effectively encourage small-balance borrowing and to notify customers of margin-call procedures in a timely manner.
The Bank of Korea also sent the same signal. In its recent Financial Stability Report, it warned that the expansion of asset investment using leverage could deepen financial imbalances and raise default risks in vulnerable sectors.
It is said that loan regulations alone cannot stop debt-driven investing. Even if banks tighten overdraft limits, funds flow into margin loans or securities-backed loans. That is the balloon effect. The outstanding balance of securities-backed loans reached 26.3 trillion won at the end of last month, 5.9 trillion won more than the five-year average.
In the end, an investor’s own defenses matter most. The financial sector advises first deciding the range of losses one can afford. Setting a stop-loss level in advance and separating living expenses from investment funds are basic rules. It is also necessary to remember that overdraft interest eats into expected returns.
The principle is clear: in a rising market, composure matters more than greed, and as volatility increases, risk management must come before aggression. Profits made with borrowed money are the first to collapse when the market starts to shake.