Thanks to Debt Investing... Securities Firms' Vaults Overflow

Interest Income of 50 to 70 Billion Won per Quarter... Approaching 2 Trillion Won by Year-End, Record High

[Asia Economy Reporter Park Jihwan] This year, securities firms have been setting new quarterly records for unprecedented debt-financed investment (debt investment) interest income. Major securities firms such as Mirae Asset Securities, Samsung Securities, NH Investment & Securities, Kiwoom Securities, and Korea Investment & Securities are earning interest income related to debt investment in the range of 50 billion to 70 billion KRW per quarter. The securities industry is expected to surpass 1 trillion KRW in credit interest income for the first time this year and approach 2 trillion KRW in earnings by the end of the year.

According to the Korea Financial Investment Association on the 22nd, the total interest income earned by 28 domestic securities firms through margin trading loans from individual investors up to the third quarter of this year amounted to 1.3432 trillion KRW. This is double the 655.4 billion KRW recorded during the same period last year. It has already exceeded last year's annual interest income of 997 billion KRW by 1.35 times. Recently, securities firms have been continuously breaking their quarterly records for interest income from margin trading loans. In the third quarter, the securities industry earned 490.7 billion KRW in interest income, showing a steady increase of about 10% each quarter following 403.8 billion KRW in the first quarter and 448.7 billion KRW in the second quarter. Margin trading loans, mainly used by individual investors for short-term arbitrage purposes, refer to investors borrowing funds from securities firms to purchase stocks. Securities firms charge a certain interest on the loaned amount.

Among securities firms, Mirae Asset Securities and Samsung Securities have been competing closely for the top spot. Mirae Asset Securities earned the highest margin trading loan interest income of 206.8 billion KRW up to the third quarter. Samsung Securities, which had earned the most interest income from margin trading loans in the first half (206.4 billion KRW), is trailing by just 400 million KRW. Following them are NH Investment & Securities (164.8 billion KRW), Kiwoom Securities (145.7 billion KRW), Korea Investment & Securities (143.9 billion KRW), KB Securities (114.7 billion KRW), Shinhan Investment Corp. (68.7 billion KRW), Yuanta Securities (55.2 billion KRW), Hana Financial Investment (42.0 billion KRW), Daishin Securities (32.6 billion KRW), and eBest Investment & Securities (32.2 billion KRW) in terms of high margin trading loan interest income.

Among securities firms earning over 10 billion KRW in margin trading loan interest income, the year-on-year growth rates were steepest for Hanwha Investment & Securities (167.5%), KB Securities (145.6%), Hi Investment & Securities (141.8%), Samsung Securities (139.7%), Shinhan Investment Corp. (138.7%), Korea Investment & Securities (129.9%), and DB Financial Investment (114.9%).

The increase in interest income in the securities industry is due to a significant rise in debt-financed investments by individual investors. As of the 18th, the outstanding balance of margin trading loans stood at 23.5933 trillion KRW. This is a 22.7% increase compared to 19.2214 trillion KRW at the end of last year. Although it is less than the all-time high of 25.65 trillion KRW recorded in mid-September, it remains a substantial amount.

The record-breaking interest income of securities firms is not only due to the absolute scale of debt investment but also the high interest rates. Higher interest rates directly translate into increased interest income. Currently, major securities firms apply margin trading loan interest rates ranging from 3.9% to 7.5% for loan periods within 7 days. The longer the loan period, the higher the interest rate. If borrowed for about three months, the interest rate jumps sharply from 7.2% to 9.5%. Compared to the average credit loan interest rate of 3.45% at banks such as KB Kookmin, Shinhan, Woori, Hana, and NH Nonghyup as of last month, this is up to three times higher. Even considering differences in funding costs across industries, there are criticisms that the interest rates are excessively high.