Credit Line Usage at Top 5 Banks Nears 42.77%

As of the end of last month, the actual utilized amount of credit lines from the five major commercial banks reached KRW 41.2041 trillion out of a total available limit of KRW 96.3387 trillion, hitting 42.77%. The utilization rate of credit lines has been on the rise, increasing from 37.58% in the first quarter of 2023 to 41.08% by the end of last year, and further climbing to 42.77% by the end of last month. This indicates that a substantial portion of the funds banks have pre-approved is actively being used.

Concerns are being raised that approved credit limits could be converted into actual household debt without new reviews, particularly during periods of stock market overheating. The recent surge to record highs in the KOSPI index and outstanding margin trading balances exceeding KRW 38.0226 trillion are cited as background factors for the overheating domestic stock market. It is pointed out that bank credit lines can function like 'immediately available investment funds,' necessitating close monitoring of how quickly these limits are being depleted. A 1 percentage point increase in the utilization rate could lead to an additional KRW 963.4 billion in loans.

When funds borrowed through credit lines are combined with margin trading, the actual leverage for individual investors can become significantly larger than what is apparent in statistics. While usage amounts surge rapidly during stock price rallies, investors face the dual burden of investment losses and loan interest payments during market downturns. During market upturns, credit lines provide individual investors with a swift means of financing. However, if the market enters a correction phase, these funds could remain as high-interest credit loans that need to be repaid.

The Financial Services Commission explained that when applying the DSR (Debt Service Ratio) on a borrower-by-borrower basis, limit-based loans like credit lines are considered based on their actual utilized amount, not the total limit. Although the system theoretically treats the entire credit line limit as potential debt, market attention has tended to focus solely on the growth of actual outstanding balances. Credit lines are products where it is difficult for banks to predict when and how much a customer will withdraw.

To manage household debt, it is argued that a comprehensive view is needed, encompassing not only the outstanding balances of credit lines but also their utilization rates and the scale of unused limits. During periods of stock market overheating, the speed at which existing credit limits convert into actual debt should also be a key management focus. More concerning than the KRW 41 trillion in outstanding credit line balances is the potential limit of over KRW 55 trillion that remains unused. This latent potential could serve as a hidden fuse for household debt.

As of the end of last month, the total outstanding household loans at the five major banks stood at KRW 770.8229 trillion, an increase of KRW 3.5269 trillion from the previous month. Of this, credit loan increases amounted to KRW 2.1741 trillion, the largest figure in 3 years and 1 month since April 2021. During the same period, mortgage loan increases recorded KRW 1.1437 trillion. The Financial Services Commission stated that it manages margin trading risk through measures such as overall limits per securities firm, restrictions on margin ratios and collateral ratios, and differentiated limits for individual customers and securities.