Stock Loans Under Control
By Park Hyong-ki
Staff Reporter
The outstanding balance of loans to retail stock investors at securities companies has grown 24 times to 12.2 trillion won at the end of June over the past four years, according to data handed to the National Assembly by the Financial Supervisory Service.
A lawmaker expressed concerns over the steep rise in retail borrowing from securities companies, citing the need for stricter regulations on brokers.
``Securities firms are luring investors to make inadequate investments in stocks for higher brokerage fees,'' said Rep. Chin Su-hee of the Grand National Party.
She said the sharp rise in extensions of stock loans could put both brokerage houses and investors at greater risk unless more countermeasures are carried out.
However, securities companies argue that the situation doesn't pose a threat either to their soundness or investors' credits.
``Buying stocks on margin trading is burdensome. But with the level of margin trading abating amid a change of investment pattern, it's not a grave concern,'' said Min Sang-il, investment strategist at Hanwha Securities.
Investors generally secure loans from brokerages by opening up margin accounts and buying stocks on margin trading. Investors are required to maintain a minimum balance on their accounts. Otherwise, securities firms will issue a margin call, requiring investors to bring their balance to a suitable level by depositing money into the accounts. If they fail to do so, brokers will then sell their stocks to retrieve the loans.
Other data showed that brokerages sold investors' shares totaling 31 trillion won over the past four years as they failed to pay back their loans or meet margin calls.
Last May, the regulatory body banned securities firms extending two-day loans to investors. As of September, the balance of borrowing for short-term stock trading stood at 100 billion won, down from over 900 billion won at the end of December last year.
Min of Hanwha Securities said that with deposits for stocks amounting to 12.6 trillion won and short-term borrowing as well as margin trading subsiding, stock loans are stabilizing in the market.
Harold Park, research head of Seoul Securities, said, ``As securities firms are operating more based on risk management and credit assessment, the situation is well under control.''