Retail investors in South Korea have been increasingly buying stocks with borrowed money amid stock market volatility triggered by the Middle East conflict. While housing-related loans remain constrained by government regulations, other loans turned to growth for the first time in five years.
According to the Bank of Korea's "March Financial Market Trends" released Wednesday, outstanding household loans at banks rose 500 billion won ($367 million) from the previous month in March. This marks the first increase in four months. By category, jeonse (lump-sum deposit lease) loans fell 400 billion won, leaving mortgage loans flat, but other loans including personal credit loans grew 500 billion won, driving up the overall balance.
The increase in other loans in March is the first since March 2021, when they rose 800 billion won. Typically, other loans tend to decline at quarter-end due to factors such as non-performing loan sales and write-offs, but this year personal credit loan demand reversed that seasonal pattern. The BOK pointed to stock investment as the cause.
"Since the Iran conflict began, the stock market has been swinging sharply, and there was a clear pattern of other loans surging on days when stock prices plunged," said Park Min-chul, deputy director of the Market Analysis Team at the BOK's Financial Markets Department.
The central bank warned that the spread of such leveraged stock investment could increase market risks. "The portion of other loans estimated to be related to stock investment has been rising significantly," Park said. "As credit-financed investment grows, it could amplify declines during stock price corrections, so we are monitoring this closely." The concern is that retail investors who bought stocks with borrowed money could be forced into margin calls or stop-loss selling when prices fall, creating a vicious cycle that amplifies market volatility.
Mortgage loans remained subdued under the government's market stabilization measures. The BOK expects overall household loan growth to remain limited for the time being. However, with apartment prices continuing to rise in outer Seoul and major areas of Gyeonggi Province, the bank noted that housing market instability has not been fully resolved. Whether a stable trend emerges can only be determined by monitoring future home prices and loan flows, according to the BOK.