Margin Loans Hit 34 Trillion Won… Forced-Selling Ratio on Samsung Electronics at 7.2%
As volatility in the domestic stock market has grown, the outstanding balance of margin loans has surpassed 34 trillion won for the first time in three months. According to the Korea Financial Investment Association on the 16th, the margin loan balance stood at 34.2888 trillion won as of the 12th. Margin loans are funds that investors borrow from brokerages to buy stocks; the balance had climbed to the 38 trillion won range at the end of June, fell to the 27 trillion won range by August, and is now rising again.
The share of forced liquidations, in which brokerages sell stocks when borrowers fail to repay by a set deadline, has also increased. The value of forced sales surged from 6.4 billion won on the 8th of this month to 27.1 billion won on the 12th, 59.4 billion won on the 13th, and 89.3 billion won on the 14th. Forced sales accounted for 7.2% of unpaid balances on the 14th, exceeding the 7.1% recorded on July 31 during a period of heightened market volatility.
Margin loans can maximize returns when stock prices rise, but when prices fall and collateral value drops below a certain threshold, brokerages carry out forced liquidations, amplifying investor losses. The larger the margin loan balance, the greater the volume of forced selling when share prices decline. Brokerages operate safeguards such as sending text alerts to investors facing imminent forced liquidation.
Unpaid trade balances, an indicator of ultra-short-term debt-fueled investing, have also surged this month. Unpaid balances rose from around 980 billion won in early November to over 1 trillion won on the 12th and 1.3575 trillion won by the 14th. From the 1st to the 14th of this month, actual forced sales totaled 253.4 billion won relative to unpaid balances.
The surge in retail investors' debt-financed trading is also spreading to securities firms' asset-quality risks. According to NICE Credit Rating, as of the end of June, the ratio of credit extended relative to equity capital at 29 rated brokerages stood at 60.4%, exceeding the real estate finance exposure ratio (54.1%) by 6.3 percentage points. While real estate finance shrank amid high interest rates and rising defaults, credit extension surged on the back of the bull market in the second half of last year, with the ratio reversing at the end of March. Total credit extended in the securities industry ballooned from 45 trillion won at the end of June last year to an all-time high of 63.9 trillion won at the end of June this year; it fell somewhat during the July crash, but the combined total of margin loans and securities-backed deposits loans still reached 59.7 trillion won at the end of September.
Margin loans have proven concentrated in specific stocks. Of the total 33.4 trillion won in margin loan balances at the end of September, the semiconductor sector accounted for 31.1% (10.4 trillion won), with 9.2 trillion won—27.5% of the total—concentrated in just two stocks: Samsung Electronics and SK Hynix. Given the two stocks' large market capitalizations and trading volumes, the possibility of large-scale losses on unpaid balances like the Youngpoong Paper incident is small. However, the structural vulnerability remains, as collateral and investment assets are identical, meaning a fall in share prices would erode both simultaneously.
NICE Credit Rating senior researcher Seo Jae-won diagnosed, "If forced liquidations are delayed due to plunging stock prices and falling trading volumes, losses could exceed investors' margin deposits. Even if the industry-wide risk is limited, it could have a relatively significant impact on the earnings of individual brokerages with weak risk management."
