[Economic Analysis] The 'Debt-for-Investment' Craze: The Meaning of the All-Time High Credit Balance of 26 Trillion Won and Investment Risks"
[Investment Risk] The Era of 26 Trillion Won in Credit Granted for Securities Transactions
As our stock market shows a boom, renewing all-time highs, the size of private investors investing with borrowed money has also recorded an all-time high. This post deeply analyzes the reality of the surging balance of margin loans (Credit granted for securities transactions), the concerns of financial authorities, and the dangers of **Forced Liquidation** that investors must be aware of.
The Debt-for-Investment Craze: Analyzing the Meaning and Risks of the All-Time High Credit Balance
1. The Reality of the 'Debt-for-Investment' Craze: Simultaneous Surge in Margin Loans and Credit Loans
In addition to the margin loan balance hitting an all-time high, individual investors are utilizing Leverage Investment through various channels. Especially as the KOSPI broke through the 4200 level and investor sentiment remains uncooled, the increase in bank credit loans is notable.
- Record-Breaking Scale: As of November 7, the balance of Credit granted for securities transactions continues to renew its all-time high, reaching 26,216.5 billion KRW.
- Explosion in Bank Credit Loans: The outstanding balance of Household Credit Loans at the five major banks increased by 1,180.7 billion KRW from the end of October to November 7, marking the largest increase in 4 years and 4 months.
- Utilization of Minus Accounts: In particular, the sharp increase of 1,065.9 billion KRW in the balance of minus accounts suggests its use as 'Debt-for-Investment' capital, and the **'balloon effect'** from strengthened regulations on residential mortgage loans is also analyzed to have played a complex role.
- 'Buy the Dip' Sentiment: Even when the stock market experienced a temporary correction from its peak, individual investors continued net buying, indicating that strong optimism is at play, viewing the decline as a buying opportunity.
2. Financial Authorities' Perspective and Risk Management
The overheating of leveraged investment is not merely an issue for individual investors but can act as a potential risk to the entire financial system. The Bank of Korea has already warned that the Financial Vulnerability Index (FVI), which shows the medium-to-long-term stability of the financial system, has risen for three consecutive quarters.
- Deepening Financial Imbalance: The surging credit loans and margin loans are pointed to as factors that deepen the market's Financial Imbalance and accumulate household vulnerability risk.
- Securities Firms' Flexible Management: Unlike the 'Debt-for-Investment' frenzy in 2021, securities firms show a flexible attitude toward risk management, opting for **raising margin requirements** or **adjusting interest rates** instead of suspending loans, as their financial health has improved with capital size growing by 34.2% over four years.
- Consistent Warning from Authorities: While acknowledging market expectations that "KOSPI 5000 is possible," financial authorities maintain a consistent warning that "investment must be at a level where risks can be borne."
3. The Double-Edged Sword of Leveraged Investment: The Fatal Danger of 'Forced Liquidation'
Leveraged investment is dangerous because when the market moves against expectations, the losses are multiplied. In particular, **Forced Liquidation**, which occurs in leveraged transactions like margin loans or day trading with unsettled balances, can inflict irreparable damage on investors.
Mechanism of Forced Liquidation and Loss Amplification
- Maintenance Margin: Forced Liquidation is a system where, if the value of the collateral assets falls below a specific Maintenance Margin (generally around 120%) due to a drop in stock prices, the securities firm forcibly sells the shares to recover the loan principal.
- Case of Loss Amplification: When using leverage, stock prices need only move unfavorably by 1-2% to **lose the entire initial investment**, and analysis suggests that a sharp drop in stock prices can lead to a horrifying result of up to 72% loss rate.
- Factor Accelerating Decline: Forced Liquidation acts as a factor that further accelerates the decline when stock prices fall, as it dumps a large volume of sell orders onto the market all at once.
- Notification: When the collateral ratio reaches a certain level, such as 125%~123%, a warning notice is sent to the customer via SMS, etc.
- Execution: If the collateral ratio falls to 120% or below based on the closing price of the regular market and is not restored by 8:30 AM the next day, Forced Liquidation is executed during the next day's opening call auction.
4. Implications: Guarding Against the Fear of 'Being Left Behind'
Experts warn that many young people in their 20s and 30s have engaged in excessive debt-for-investment due to the psychological pressure of "If I don't invest, I'll be left behind." Leveraged investment significantly heightens psychological pressure, greatly increasing the risk of leading to emotional trading or hasty selling decisions.
Investors must abandon the illusion that the current boom will last forever and recognize that a fall in stock prices can cause a severe shock to their personal financial soundness. The most important thing is strict self-risk management, utilizing leverage cautiously within the range of acceptable risk rather than maximizing returns.
Final Admonition:
Debt-for-investment yields high returns when successful, but it can be a shortcut to ruin when it fails. Before utilizing margin loans, you must coolly assess whether you can endure a 30% drop in stock prices.
▲ Image of an investor reaching a dangerous peak due to excessive LEVERAGE investment
The content of this blog is for reference in investment judgment only, and investment decisions must be made under individual judgment and responsibility. Under no circumstances can the information in this blog be used as evidence of legal liability for investment outcomes.
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