'Black Monday' panic drives 608.5 billion-won surge in overdraft borrowing for stock bets

Investors hoping to profit from a rebound around the recent "Black Monday" market rout rushed to tap overdraft credit lines for leveraged stock purchases, pushing combined overdraft balances at major commercial banks up more than 600 billion won ($408 million) in just two trading days.

Overdraft balances at the five major commercial banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — stood at 42.9516 trillion won ($28.3 billion) as of Monday, according to banking industry data released Wednesday. The figure reflects actual amounts drawn, not credit limits, and is the highest since late November 2022, when balances reached 43.1063 trillion won.

The five banks' combined overdraft balances rose from 39.7877 trillion won at the end of April to 41.5324 trillion won at the end of May, then surged a further 1.4191 trillion won in just five trading days into June. The sharpest jump came on the two days the Kospi crashed — Friday and Monday — when balances swelled by a combined 608.5 billion won. Balances rose 136.7 billion won on Friday and 471.9 billion won on Monday.

The Kospi had broken above the 8,000 mark intraday for the first time in history on May 15 and continued to climb, but fell 5.54 percent on Friday as the won weakened sharply against the dollar and semiconductor stocks retreated. On Monday the index slid as low as 7,442 intraday before closing down 8.29 percent. A circuit breaker briefly halted trading shortly after the opening bell that day.

The extreme market volatility appears to have convinced investors that short-term rebound gains would outpace borrowing costs, prompting a wave of leveraged buying.

"Overdraft interest is calculated on an annualized rate, but you only pay for the days you actually use the credit line, and there are no early repayment fees," a commercial bank official said. "In a sharp rally, you can earn returns that exceed the overdraft interest in just a few days, so the appetite for leveraged investing has clearly grown."

Expectations surrounding the "National Growth Fund," launched May 22, are also stoking market liquidity. President Lee Jae-myung said May 26 that the government was considering offering fiscal and policy-finance incentives to fund managers who deliver strong returns, fueling expectations that the Kospi and Kosdaq will rally after the fund begins formal operations June 12.

Markets are expected to remain volatile as foreign selling and domestic retail buying continue to clash. Analysts say the trend of debt-fueled investing by retail investors taking advantage of heightened share price volatility is likely to persist for now.

"Given that the Kospi managed to rebound on Tuesday, there is a good chance that additional investment demand has flowed into the market," another banking industry official said. The index closed Tuesday up 8.18 percent at 8,096.93 — its largest single-day gain on record.

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https://biz.heraldcorp.com/article/10766221