[1mm Finance Talk] P2P Finance Shifts from Real Estate to Stocks

Outstanding P2P Loan Balance Reaches 1.43 Trillion Won in October
Real Estate-Backed Loans Account for 43%, Down 11 Percentage Points Year-on-Year
Stock and Other Collateralized Loans Rise to 38%, Up 16 Percentage Points Year-on-Year

The collateral assets in the online investment-linked finance industry (P2P finance) are shifting from real estate to stocks. This trend is attributed to the subdued real estate market resulting from government lending regulations, while the stock market remains buoyant.

According to the Korea Financial Telecommunications and Clearings Institute on November 18, the outstanding loan balance of 49 P2P finance companies last month stood at 1.4339 trillion won, marking a 30.1% increase compared to the same period last year (1.0947 trillion won). Of this, the proportion of real estate-backed loans was 43%, an 11 percentage point decrease from a year earlier. However, the proportion of other collateralized loans-mostly stock-backed loans (stock loans)-soared by 16 percentage points to 38%. This is the first time the share of other collateralized loans has reached as high as 38%.

A stock loan is a product in which borrowers use stocks or cash held in their securities accounts as collateral to receive funds for stock purchases. When a borrower requests a loan from a P2P finance company using their securities account as collateral, investments from P2P finance investors are supplied to the borrower through the P2P company.

The increased share of stock loans appears to be driven by the recent stock market boom, with the KOSPI surpassing the 4,200 mark and sparking a "debt-fueled investment" frenzy. For P2P finance investors, stock loans are considered less risky than real estate project financing or unsecured personal loans. This is because if the collateral ratio of the stocks falls below a certain threshold (120-125%), an automatic forced sale is triggered, allowing the loan to be recovered.

The decline in the proportion of real estate-backed loans seems to directly reflect the current sentiment in real estate investment. Initially, it was expected that demand for loans would shift to the P2P finance sector following the government's real estate regulations, such as the June 27 and October 15 measures. This is because, unlike banks, P2P finance companies are not subject to regulations like the Loan-to-Value (LTV) ratio or the Debt Service Ratio (DSR). Financial authorities had also stated they would closely monitor for any spillover effects.

However, last month, the outstanding balance of real estate-backed loans at P2P finance companies was 616.6 billion won, similar to the 591.1 billion won recorded a year earlier, indicating that the expected effect was limited. As the government's policy stance continues to encourage the transfer of funds tied up in real estate to the stock market, anxiety over declining real estate collateral values appears to be spreading among P2P finance investors. For borrowers needing to execute real estate-backed loans quickly within payment deadlines, such as for final settlements, P2P finance has not served as an adequate alternative. This is because loans are only disbursed after funds are raised from investors, and borrowers cannot afford to wait indefinitely.

If concerns over declining real estate collateral values persist, the number of P2P finance investors could decrease, which may hinder the smooth supply of funds to borrowers and potentially threaten the P2P finance ecosystem. Last month, Lendit, the leading P2P finance company in Korea, also ceased operations due to such structural limitations and regulatory challenges. An industry insider commented, "Currently, even if a borrower has a high credit rating, the market does not function if investors turn away," adding, "Institutional support centered on borrowers is necessary."