The financial authorities will expand the use of the Korea Overnight Financing Repo Rate (KOFR), one of the benchmark rates that serve as standards for financial transactions such as loans, bonds, and derivatives. KOFR is the overnight repurchase agreement (RP) rate collateralized by Government Bonds and monetary stabilization bonds, and is Korea's risk-free reference rate. It has the advantage of lower volatility than other benchmark rates when credit risk arises at financial institutions such as banks.
The CD rate will be excluded from the list of critical benchmarks under the Act on the Management of Financial Transaction Benchmarks at the end of 2030, and bank loans based on the Korea Inter-Bank Offered Rate (KORIBOR) will be discontinued after Apr. 2027. Instead, a plan is under review to include the Cost of Fund Index (COFIX), the benchmark for bank mortgage loan rates, as a critical benchmark.
Vice Chairman Kwon Dae-young of the Financial Services Commission convened the benchmark rate and short-term money market council, joined by the Bank of Korea, the Financial Supervisory Service, and related policy institutions, to discuss a reform plan for benchmark rates. Kwon said, "Through this benchmark rate reform, the financial market and financial infrastructure are expected to be qualitatively upgraded by one level."
To activate KOFR, the financial authorities decided to raise the share of KOFR transactions in the interest rate swap market to 70% by 2030. The share of floating-rate bond issuance based on KOFR will be expanded to 50% by Jun. 2031, and the Korea Development Bank and Industrial Bank of Korea (IBK) will supply 1 trillion won in new KOFR-based loans by the second half of 2026. New KOFR-based loans are scheduled to be launched to provide short-term working capital support for regional companies, small and medium-sized enterprises, and small business owners.
The financial authorities explained that KORIBOR is similar in structure to the London Interbank Offered Rate (LIBOR), which has ceased publication, and that its weight will be gradually reduced. For customers using loans based on KORIBOR, the terms will apply without change until the end of the contract period, but when extending loans after Apr. 2027, contracts can be concluded by switching to another benchmark rate.
Until COFIX is designated as a critical benchmark, the financial authorities plan to strengthen oversight to a level equivalent to that of a critical benchmark. When banks conduct self-inspections of the accuracy of COFIX calculation data and the adequacy of internal controls, the Financial Supervisory Service (FSS) will review the results.