The Aftermath of 62 Trillion Won in Margin Investing: Forced Sales, Delinquencies and Bad Debts Create a Triple Burden [fn Market Watch]

[Financial News]  As individual investors' margin investing has swelled to a record high, the stock market's sharp swings in July are intensifying the fallout from leveraged bets. Forced sales are rising quickly, credit balances have fallen by nearly 5 trillion won in a short period, and concerns are growing that delinquent bank credit loans and securities firms' unpaid receivables could spread across the financial sector.
According to the Korea Financial Investment Association on the 24th, the average daily balance of margin loans in the second quarter of this year reached 35.9418 trillion won, the highest quarterly figure on record.
Including securities-backed loans of 25.9666 trillion won, the average daily leverage investment volume came to 61.9084 trillion won, effectively reaching 62 trillion won. Margin loan balances also hit an all-time high of 38.6328 trillion won on June 24, showing how heavily individual investors were borrowing to buy stocks during the semiconductor-led rally.
The problem began after the market changed direction. In July, KOSPI (Korea Composite Stock Price Index) swung sharply between losses and gains, creating the worst possible environment for leveraged investors. Circuit breaker mechanisms were triggered repeatedly this month, and as volatility widened in heavyweight semiconductor stocks such as Samsung Electronics and SK hynix, the broader index was shaken significantly. KOSPI briefly fell below the 7,000 level intraday before recovering it again, extending a roller-coaster session.
The market shock quickly led to more forced sales. On the 9th, the daily volume of forced liquidations surged to 142.2 billion won, and the cumulative amount in July also rose rapidly. Unpaid settlement funds exceeded 1.4 trillion won, while the ratio of forced sales to unpaid amounts also climbed sharply from the beginning of the year.
The situation became especially severe as individual funds were concentrated in leveraged products tied to Samsung Electronics and SK hynix. When both stocks fell at the same time, accounts with collapsing collateral values were liquidated one after another. As a result, margin loan balances, which had reached record highs, fell by about 5 trillion won from their peak to the mid-33 trillion won range, while investor deposits dropped by more than 30 trillion won in just one month.
These concerns are spreading beyond securities firms to banks as well. According to the Bank of Korea, household bank loans rose by 7.6 trillion won in June from the previous month, the largest increase in 1 year and 10 months. Other loans, especially unsecured credit loans, increased sharply, and the central bank said the expansion of individual stock investing was one of the main reasons. With the benchmark rate also rising, the burden on leveraged investors has grown even heavier.
The Monetary Policy Board raised the benchmark rate to 2.75% on the 16th, and securities firms' margin loan rates are also around 9% for long-term borrowing. As funding costs rise, both investment losses and interest expenses are bound to increase at the same time.
Industry watchers say the key variable to watch going forward is not simply the size of credit balances, but the recovery rate. If collateral sold through forced liquidation during a sharp market drop does not fully cover the loan, securities firms' unpaid receivables will increase. If bank credit loans also turn sour, the burden on financial sector soundness could deepen. In a rising market, leverage boosts trading volume, but in a volatile one, a vicious cycle of forced sales, falling stock prices, damaged collateral values and additional forced sales can amplify market swings.
This margin-investing cycle is seen as having broader repercussions than in the past because it is not just about losses for individual investors. It is also linked to securities firms' unpaid receivables, banks' delinquency rates and overall financial sector soundness. If the central bank raises rates again or semiconductor stocks become more volatile, pressure for leveraged liquidations could easily build once more.
“What matters most is not simply that credit balances are falling, but how much unpaid receivables remain even after collateral is disposed of,” said a risk management official at a securities firm. “For now, we need to watch the pace of leverage reduction and the trend in delinquency rates together.”


[email protected] Kim Kyung-a Reporter