The Temptation of 3.9% Annual Rates for Debt-Fueled Retail Investors... Securities Firms Compete to Attract Investors by Lowering Interest Rates

With the advent of the "Ocheonpi" and "Cheonsdaq" eras and the stock market experiencing unprecedented bullishness, individual investors' "debt-fueled investing" (borrowing to invest) has also surged to an all-time high. In response, securities firms are rapidly offering preferential interest rates to attract investors.

According to the Korea Financial Investment Association on January 27, the outstanding balance of margin loans stood at 29.0821 trillion won as of January 21, marking a record high. The previous day, it reached 29.0586 trillion won, surpassing the 29 trillion won mark for the first time ever, and then increased further in just one day. Last October, the margin loan balance was in the 24 trillion won range, but it has steadily risen as the KOSPI continued its upward trend. In November, it climbed to the 26 trillion won range, and in December, it surpassed 27 trillion won. This month, it consecutively broke through the 28 trillion and 29 trillion won marks.

Customer deposits, considered as standby funds for the stock market, have also been rising steadily. As of January 21, they reached 96.3 trillion won, setting a new all-time high.

With more investors seeking to ride the bull market, securities firms are becoming increasingly active. To attract the growing number of investors, they are lowering margin interest rates one after another.

Hana Securities is running a "Margin Trading Event" that lowers the margin interest rate to 3.9% per annum until March 27. Eligible participants are customers who, as of the event application date, have no history of margin trading or margin balances in any account from October 1 of last year up to the day before the application, and who hold non-face-to-face or bank-opened accounts. Customers participating in the event can receive the 3.9% annual margin interest rate benefit for up to 180 days. A Hana Securities representative explained, "With domestic stock trading becoming more active recently, margin trading is increasing, so we have prepared an event to offer discounted margin interest rates and additional benefits for trading."

Hanwha Investment & Securities is currently running a "Loan Transfer Upgrade" event until March 31, which allows customers to reduce their interest burden by refinancing their stock loans. If customers complete the loan transfer to Hanwha Investment & Securities during the event period, a 3.9% annual interest rate will be applied for 90 days.

Woori Investment & Securities is also offering a preferential interest rate event for margin loans and stock-backed loans at 3.9% per annum until the end of this year to ease customers' investment funding burdens. Customers who open an account and sign a margin loan or stock-backed loan agreement with Woori Investment & Securities will automatically receive the preferential rate without a separate application.

As debt-fueled investing increases, there are also growing voices of caution. While margin loans can yield high returns when stock prices rise, they can also result in forced liquidation if stock prices fall and the value of pledged stocks declines, leading to potential losses. An industry insider commented, "Recently, as the stock market strengthens, the FOMO (fear of missing out) sentiment is becoming more pronounced, and more investors are joining the stock investment bandwagon. However, it is important to keep in mind that investing with margin loans carries the risk of losses."