Peer-to-peer lending balances have surged as growing demand for leveraged stock investment drives borrowers to online lending platforms offering stock-backed loans.
Outstanding loans at 46 registered P2P lending companies in South Korea reached 1.83 trillion won ($1.26 billion) at the end of last month, up 5.2% from the previous month, according to financial industry data released Monday. The figure jumped 62.6% from a year earlier, marking the highest level since authorities began tracking the data in June 2021.
Stock-backed loans led the increase. These loans use individual stocks as collateral and automatically liquidate holdings to recover principal when share prices fall below a set threshold. Such loans now account for 41% of total P2P lending, up sharply from 27% in February last year. HiFunding, which specializes in stock-backed loans, topped the industry with 527.8 billion won in outstanding loans.
"People looking to raise additional funds for stock investment are turning to stock loans," an industry official said.
The surge reflects borrowers seeking to circumvent debt-service ratio regulations. Under lending restrictions imposed last June 27, banks, savings banks, and credit card companies limit unsecured loans to borrowers' annual income. P2P loans, however, are excluded from DSR calculations and face no such caps.
"With financial markets rattled by the U.S.-Iran conflict, we cannot rule out the possibility of P2P loan defaults going forward," a financial industry official said. "Investing with borrowed money should be avoided under any circumstances."
The official added: "As P2P stock-backed loans that bypass lending regulations are growing rapidly, it is time for financial authorities to take a closer look."