Regulators Toughen Stance on Stock Loans
Savings Banks Told to Refrain From Expanding Stock-Related Loans
By Park Hyong-ki
Staff Reporter
The nation's financial regulator said it will strengthen supervision on non-financial banks extending loans to retail stock investors.
According to the Financial Supervisory Service (FSS) Tuesday, 18 mutual savings banks extended 382 billion won in loans for stock investment to retail customers as of June, up 165 percent from 144 billion won at the end of last year.
Although they accounted for a mere 0.9 percent of the outstanding loans at savings banks, the regulator expressed concerns about growing risks involving the steep rise in loans for stock purchases.
``There's a possibility that demand for stock loans at savings banks will continue to grow in the wake of stricter regulations on retail borrowing at securities companies,'' said Kwon Hyouk-se, director general of the financial supervision policy bureau for the Financial Supervisory Commission, at a press briefing. ``We will beef up our monitoring system on loans relating to stocks.''
The financial supervisor has been toughening its measures to stem steep gains in the balance of margin trading on borrowings from brokerage houses.
After such measures were implemented, the balance shrank to 5.8 trillion won this month, down from 7 trillion won in June, according to the Korea Securities Dealers Association.
Also, an increasing number of borrowers turned to commercial banks to receive loans by using their stocks as collateral for corporate and household funding.
Seven banks, including Kookmin, Woori and Shinhan, extended 2.5 trillion won in combined loans backed by stocks as of June this year, up 65 percent from 1.5 trillion won in December 2006.
Such loans backed by equities accounted for 0.5 percent of the total won-denominated loans extended by banks.
Kwon said that banks as well as non-banks are increasing stock loans to make up for dwindling mortgages or loans to small and medium-sized enterprises (SMEs).
``Sudden sharp rise in stock loans could put both financial firms and borrowers at greater risk and negatively affect investors and the stock market,'' he said.