"Securities Firms' Interest Rates Twice Those of Banks... Borrowing Investors Face Hardship" [Era of Interest Poor]

Despite Much Higher Interest Rates Than Banks,
Losses Increase as 'Debt Investment' Leads to Stock Market Decline

[Asia Economy Reporters Minwoo Lee, Baeri Boo, Nayoung Shim] #Office worker A, who has been investing in stocks for two years, recently thought the downturn was an opportunity similar to the early days of COVID-19. Therefore, A, who rarely used securities firms' margin trading, even took out margin loans to invest mainly in large-cap stocks, but the situation is not easy. A said, "I never thought the phrase 'thought it was the bottom but it's the basement' would apply to me," adding, "I am losing sleep due to interest burdens and the fear of forced liquidation."

A cold wave is sweeping the financial market due to inflation surges originating from the U.S. and concerns over interest rate hikes. Along with the base interest rate, securities firms are also raising loan interest rates, increasing the interest burden and loss concerns for those who borrowed money to invest in stocks.

According to the Korea Financial Investment Association on the 16th, as of the 14th, the balance of margin loans stood at 21.609 trillion won. Although it fell to the 20 trillion won level at the end of February, it began to rise again as more investors aiming for bottom-fishing increased amid the market downturn. On April 26, it even surged to 22.46 trillion won. However, as the index has struggled to recover, the interest burden on these investors is also increasing.

When investors borrow money from securities firms, typically, unsettled trades must be settled within 3 days, and margin loans within 1 to 5 months. If repayment is not made within this period or if the collateral value falls below a certain ratio, the securities firm forcibly sells the borrower's stocks to recover the loaned money through forced liquidation. If investors do not earn returns exceeding the interest rate during the loan period, borrowing money is worse than not borrowing at all.

Especially with recent interest rate hikes, securities firms are also raising margin loan interest rates, which could increase investors' losses. Two years ago, financial authorities pointed out that securities firms maintained high-interest rates in the 10% range; although rates were lowered temporarily, they have been rising again this year as the base interest rate increased.

According to the industry, Shinhan Financial Investment raised the interest rate for loans within 7 days from an annual 4.50% to 4.75% earlier this month. DB Financial Investment increased interest rates by 0.20 percentage points across all periods, and Meritz Securities raised rates by 0.10 percentage points. Mirae Asset Securities, Kyobo Securities, Daol Investment & Securities, Yuanta Securities, and Daishin Securities also raised rates by about 0.20 to 0.50 percentage points.

Many firms require interest payments in the 8% range if the loan period exceeds one month. According to the Korea Financial Investment Association, for the 31?60 day period, margin loan interest rates are mostly in the 8% range: DB Financial Investment (8.21%), KB Securities (8%), NH Investment & Securities (8.5%), SK Securities (8.7%), Daol Investment & Securities (8.5%), Meritz Securities (8.3%), Samsung Securities (8.2%), Shinhan Financial Investment (8.7%). Borrowing from Yuanta Securities (9.1%) or Kiwoom Securities (9%) requires enduring high interest rates up to 9%. (This is nearly double the average interest rate of the five major commercial banks' credit loans?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?which range from 4.49% to 5.10%.)