Retail investors' debt-fueled stock bets hit 3-year high as overdraft balances surge

Retail investors borrowing to ride a surging stock market show no signs of pulling back. Overdraft balances at major commercial banks have swelled to their highest level in three years and eight months, even as lenders scramble to introduce curbs. Banks say they are largely powerless against borrowers who already have open credit lines, and the share of those limits being drawn down has reached its highest point since the COVID-19 pandemic.

The combined personal overdraft balance at the five major banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — stood at 43.34 trillion won ($28 billion) as of June 25, according to financial industry sources and Yonhap News Agency. That is the largest figure for a month-end period since October 2022, when the balance reached 43.66 trillion won. Overdraft balances at the five banks have grown by more than 1 trillion won each month for two consecutive months since May.

The balance rose 1.86 trillion won from 39.67 trillion won at the end of April to 41.53 trillion won at the end of May, then climbed a further 1.8 trillion won in June.

The May increase was the largest monthly gain in five years and one month, since April 2021, when balances jumped 6.44 trillion won. June's increase came in at a similarly large scale.

The weekly pace of growth fluctuated through the month. Balances rose 810.6 billion won in the first week of June (June 1–4), slowed to 473.9 billion won in the second week (June 8–11) and narrowed further to 130.8 billion won in the third week (June 15–18), before rebounding to 388.6 billion won in the fourth week (June 22–25).

The renewed acceleration in the fourth week reflected a surge in debt-fueled investing after the Kospi swung sharply — tumbling nearly 10 percent before rebounding more than 5 percent the week of June 22.

Total personal credit loan balances, including overdrafts, reached 108.73 trillion won as of June 25, the highest level in three years since June 2023, when the figure stood at 108.93 trillion won.

The increase in personal credit loans in June — 2.21 trillion won — was the largest monthly gain in five years and two months, since April 2021, when balances grew 6.84 trillion won.

The utilization rate on existing overdraft lines has also climbed to its highest level since the COVID-19 pandemic.

The average overdraft utilization rate — the ratio of amounts drawn to maximum credit limits set — across the five major banks stood at 44.8 percent as of June 25.

The combined maximum overdraft limit across all accounts at the five banks totaled 96.75 trillion won as of June 25, of which 43.34 trillion won was actually in use.

Utilization rates by individual bank ranged from 43.3 percent to 46.8 percent. One bank hit an all-time high, while the remaining four recorded their highest rates since 2021 — when share prices surged in the wake of the pandemic and utilization ran between 45.0 percent and 47.2 percent — according to internal records.

The Bank of Korea had earlier warned in a report that "the potential accumulation of financial imbalances stemming from increased leverage-driven asset investment, and concerns over a deterioration in vulnerable sectors amid changing financial conditions, remain latent sources of instability in Korea's financial system."