South Korean investors tap credit lines for stock purchases amid market plunge

South Korean investors are increasingly turning to minus-balance accounts, essentially lines of credit, to fund stock purchases amid market volatility. The outstanding balance across the nation's five largest banks surged by almost 1.8 trillion won (approximately $1.3 billion) in just six days, pushing the total to its highest point in four years.

This trend emerged after the KOSPI index experienced a significant drop of 10.84% on August 28. Investors, seeing this as an opportunity for low-cost buying, began drawing heavily from their minus-balance accounts. One investor shared on a stock trading forum, "I didn't want to use my minus-balance account with a 4.4% interest rate, but it seems like it's time to use it for installment buying. Since we both work, I think we can afford the interest, but I'm still nervous."

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I didn't want to use my minus-balance account with a 4.4% interest rate, but it seems like it's time to use it for installment buying. Since we both work, I think we can afford the interest, but I'm still nervous.

Despite efforts by banks to tighten lending conditions since mid-June, including reducing credit limits for new accounts, the balance of existing minus-balance accounts continues to climb. This is because banks cannot unilaterally reduce the credit limits already set for customers. The total balance across the five major banks stood at 44.47 trillion won as of August 30, with the overall personal credit loan balance also rising to 110.48 trillion won, a 3-year and 4-month high.

Meanwhile, demand deposits, such as current accounts, decreased by 52.43 trillion won in August, with a significant portion likely flowing into the stock and real estate markets. Conversely, fixed deposits saw a substantial increase of 24.95 trillion won, reaching their highest level since October 2022, as banks offered competitive interest rates around 3%.

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As the KOSPI plummeted, triggering market stabilization measures like sidecars and circuit breakers for two consecutive days, funds aimed at low-cost buying appear to have been withdrawn from minus-balance accounts.