Securities Firms Recalculate 'Credit Loan Interest Rates' Monthly... Will Rates Decrease?

[Asia Economy Reporter Koh Hyung-kwang] The interest rates on securities firms' margin loans, which have been criticized for being too high, will be recalculated monthly from next month to reflect market interest rate levels. Attention is focused on whether this will lead to a reduction in rates.

According to the financial investment industry on the 10th, the Financial Services Commission revised the model guidelines for calculating securities firms' margin loan interest rates on the 4th and plans to apply them from November. Margin loans refer to the money that securities firms lend to stock investors.

Currently, securities firms calculate margin loan interest rates once or twice a year by adding a spread and adjustment rate to their individual funding costs. Going forward, instead of using the varying funding costs for each company, a benchmark interest rate (based on market rates or reference rates such as commercial paper and repurchase agreements) must be used to reflect the loan interest rate monthly. The spread must also be recalculated monthly in principle, and detailed interest rate calculation information must be disclosed to loan users.

Amid the 'debt investment' craze, the scale of securities firms' credit extension has grown to around 35 trillion won, and consumers have expressed considerable dissatisfaction with the opaque loan interest rates of securities firms. Since the interest rate calculation method was not disclosed externally and the timing of interest rate changes varied, securities firms' loan interest rates remained stagnant even as the Bank of Korea's base rate declined.

As of the end of August, margin loan interest rates ranged from 5.75% to 8.75% per annum. A Financial Services Commission official explained, "From now on, changes in market interest rates will be properly and timely reflected in securities firms' loan interest rates," adding, "If competition among securities firms over interest rates expands, loan users' choices could also increase."