Debt-fueled investing continues even as interest rates soar above 4%... Overdraft balances at five major banks top 41 trillion won

The outstanding balance of credit line loans, or overdraft accounts, at the Five Major Commercial Banks has climbed past 41 trillion won. The figure jumped by about 1.5 trillion won from the previous month, suggesting that investors who expect stock market gains to outpace borrowing costs have been turning more aggressively to debt-fueled investing. As market interest rates continue to trend upward, there are also concerns that delinquency rates could rise sharply in the future.
According to the financial sector on the 24th, the combined balance of personal overdraft accounts at the Five Major Commercial Banks — KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank and Nonghyup Bank — stood at 41.2822 trillion won as of the 21st. The balance, which was 39.738 trillion won at the end of January, rose to 39.7877 trillion won at the end of March. After edging down to 39.7877 trillion won at the end of last month, the overdraft balance surged by 1.4945 trillion won in just three weeks. A banking industry official said, "Although overdraft loans carry higher interest rates than collateralized loans, many retail investors believe the expected returns from stock investing are higher than the borrowing costs in the current fast-rising market."
As debt-fueled investing increases, interest rates are also rising, prompting concern both inside and outside the financial sector.
The lower end of fixed mortgage rates at major commercial banks is also moving into the 5% range. This comes as market rates, which serve as benchmarks for loan pricing, have continued to rise amid expectations of a policy rate hike driven by inflation concerns stemming from the war in the Middle East.
Starting this week, KB Kookmin Bank will raise its mortgage mixed-rate and periodic fixed-rate products by 0.10 percentage point, matching the recent increase in the benchmark five-year financial bond yield. As a result, the lower end of its mixed-rate mortgage loans, based on five-year bank bonds, will rise to 5.07% per year. This is the first time since late October 2022 that KB Kookmin Bank's fixed-rate floor has exceeded 5%.
Personal credit loan rates are also ranging from 4.10% to 5.74% per year for top-tier borrowers on a one-year maturity basis, with the lower end rising by 0.25 percentage point from two months ago and moving well above 4%. The upper end has also climbed by 0.21 percentage point. The increase reflects a 0.13 percentage point rise in the benchmark one-year bank bond yield over the same period. A commercial bank official said, "We have been feeling greater volatility every day as we calculate loan rates."