Korean internet banks have recently begun to tighten their lending standards across the board.
This trend became clear when KakaoBank announced a significant cut to its 'minus account' (overdraft) limit, and competitors like K-Bank and Toss Bank quickly followed suit. This isn't an isolated event but rather a coordinated response to a convergence of risks that have been building in the financial system. There are three main drivers behind this sudden shift: financial stability concerns from regulators, a record level of retail investor leverage in the stock market, and a recent spike in market volatility that raised alarm bells.
Let's look at the causal chain. First, the amount of money individuals borrowed to invest in stocks, known as margin loans, surged to an all-time high of nearly ₩36 trillion in late May. This happened just as new high-leverage products, like single-stock 2x ETFs, became available, making it even easier for individuals to make highly speculative bets. This created a very fragile situation in the market.
Second, this record leverage coincided with a period of extreme market volatility in early June. The KOSPI index hit new highs but then experienced a sharp drop before rebounding, a classic 'whipsaw' pattern. This kind of volatility is dangerous for leveraged investors because a sudden price drop can trigger forced selling, where brokers automatically sell an investor's stocks to cover their loans. This can cause a domino effect, leading to a market crash. The banks and regulators saw this risk escalating and decided to act pre-emptively by reducing the supply of easy credit.
Finally, the broader policy environment had already shifted. The Financial Services Commission (FSC) had announced a plan in April to cap household debt growth. Moreover, the new Bank of Korea (BOK) governor has repeatedly emphasized financial stability as a top priority and signaled potential interest rate hikes. These signals from the top encouraged banks to tighten their belts and manage their risk exposure before being forced to do so by more stringent regulations. In essence, the internet banks' actions are a proactive measure to de-risk the system in the face of a perfect storm of high leverage, market volatility, and regulatory pressure.
- Minus Account: A type of credit line in Korea that is linked to a standard bank account, allowing the account holder to borrow money up to a preset limit simply by overdrawing the account. It functions like an overdraft facility.
- Bitu (빚투): A Korean slang term that translates to 'debt investment.' It refers to the practice of taking out loans or borrowing money to invest, typically in high-risk assets like stocks or cryptocurrencies.
- Margin Loan: A loan from a brokerage firm that allows an investor to buy more securities than they could with their own cash. The securities in the account are used as collateral.