Finance
Number of overdraft accounts on rise amid bull market
Published : Jan 31, 2021 - 14:18
Updated : Jan 31, 2021 - 14:18
Bank loans (Yonhap)


The number of new credit loans via overdraft accounts has been on a sharp rise as South Korean retail investors are scrambling to borrow money for stock investment, fueled by a recent market bull run, industry data showed Sunday.

The five major banks here -- KB Kookmin, Shinhan, Hana, Woori and NH NongHyup -- saw their customers open a total of 43,143 overdraft accounts between Jan.1-28, which equates to a combined average of nearly 2,000 daily. The overdraft balance surged by 1.21 trillion won ($1.08 billion won) from the end of last year.

The sharp rise in bank overdrafts came as retail investors have increasingly flocked to bank lending to buy shares in anticipation of price gains in the stock market, industry sources said.

The country’s benchmark Kospi hit a historic 3,000 points earlier this month, continuing an upward trend that began last year amid the COVID-19 pandemic. 

Also, the financial regulator’s recent announcement to limit the maximum credit loan amount available for individuals pushed a growing number of households to resort to bank overdrafts that are likely to be excluded from the envisioned rule, they added.

Earlier this month, the Financial Services Commission said in its 2021 policy plan that it will promote a new credit loan regulation, under which debtors should repay not only the interest, but also principal in installments, in an effort to curb soaring household debt. Currently, bank customers are required to pay off their principal when their loans come due.

The authority’s move came after the total credit loan balance of the major commercial banks soared to 134.1 trillion won during the first week of Jan., up from 133.6 trillion won at the end of last year. 

Details of the regulatory drive, including the amount of credit loans subject to the new repayment regulation and how and when to implement the measure, haven’t been confirmed yet.

An overdraft is an extension of credit from a lender that covers customers’ transactions up to an approved limit when their bank account balance drops below zero.

By Choi Jae-hee (cjh@heraldcorp.com)
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