Margin loans jump up due to bullish KosdaqSome Korean brokerages have little room to fund customers’ share purchases as more retail investors borrow money to invest in the white-hot secondary stock market, industry sources said Friday.
The tech-heavy Kosdaq market has recently been on a roll on listed firms’ improved earnings and other positives. Its key index closed up 1.59 percent at 780.22 on Thursday, extending its gaining streak to seven sessions and exceeding the 780-point level for the first time in 28 months.
According to the sources, small-capital securities companies have suspended the extension of margin loans and stock-backed lending to customers to manage their margin lending caps. Korean law bans securities companies from extending margin and stock-backed loans to customers in excess of their equity capital.
Starting this month, DB Financial Investment stopped extending stock-backed loans to clients as its outstanding loans have neared the ceiling.
The brokerage house said its margin lending, which came to 85 percent of its equity capital, has surged recently in the wake of the Kosdaq market’s bull run.
The situation is similar to Eugene Investment. As of end-September, the company’s outstanding margin and stock-backed loans reached 92 percent of its equity capital, which has recently increased further.
Eugene halted the extension of stock-backed loans and opening of new margin loan accounts a week ago, while allowing customers to again take out margin loans on Tuesday.
“As margin and stock loans recently surged on the stock market boom, we put the lid on stock-backed loans in order to manage the balance,” a company official said.
Other big-capital securities have yet ample room to finance customers’ share purchases, but they have also seen margin and stock loans increase sharply in recent months on the back of the bullish stock market.