Brokers Cut Loans to Investors
By Park Hyong-ki
Staff Reporter
Retail investors have rushed to borrow money at brokerage houses to buy stocks on hopes that the currently strong market will allow their investment to produce gains strong enough to offset interest costs.
But with the balance of retail borrowings exceeding a record 6 trillion won, policymakers and analysts are expressing concerns about growing risks involving stock purchases with borrowings. They are worried that the pace of gains in stock buying with borrowed money, or margin trading, is too fast.
Individual investors are exposed to greater risks of aftershocks if the stock market loses gravity, they said.
``Everyone is hyped up that stocks will go up,'' said Kwon Hyeok-boo, an analyst at Daishin Securities. ``But both investors in margin trading and brokers extending loans will become the biggest victims when stocks head south.''
The rise of retail investors is mainly credited for the rally. With increasing interest in indirect investment through mutual funds _ their stock investment last month accounted for about 56 percent of total trading.
However, growing margin trading or investment on credit is bound to add pressure on the equity market, analysts say. The balance of retail borrowings from brokers topped 5 trillion won on June 1 and surpassed 6 trillion won in less than a month, according to the Korea Securities Dealers Association.
Mindful of growing risks, Daewoo Securities and Kiwoom Securities said Thursday they will temporarily stop new loan services to customers, adding that they will resume the lending service after the balance of retail borrowing stabilizes.
Brokers have lent money to stock traders after taking stocks and deposit guarantees as collateral. But they have not taken into account the creditworthiness of borrowers as long as they have provided collateral and guaranteed money in their margin accounts.
The Financial Supervisory Service and the Ministry of Finance and Economy are keen to keep an eye on margin trading.
``The pace of recent stock gains is too fast, compared to the nation's economic growth,'' Vice Finance Minister Kim Seok-dong said at a press briefing.
He said the excess liquidity is one of key reasons the market's rally and the government will closely monitor the level of stock buying on credit and take necessary steps to stabilize the market.