Banks have finished revising related rules to launch loan products based on the Korea Overnight Financing Repo Rate (KOFR) in the second half. If KOFR-based loan products are rolled out, financial consumers are expected to be able to borrow at lower rates than now. Banks plan to first launch KOFR-based loans for corporations and then expand them to mortgage loan products for dwellings.
According to the financial sector on the 9th, banks recently held a meeting at the Korea Federation of Banks in Jung-gu, Seoul, and completed revisions to the related rules for introducing KOFR. The change adds KOFR to the indicators banks can use when calculating the lending rate. They also wrapped up work on refining related regulations for KOFR's introduction.
KOFR is a risk-free benchmark rate tied to the repo rate for repurchase agreements (RP) collateralized by Government Bonds issued by the state and monetary stabilization bonds issued by the Bank of Korea to control the money supply. Because it is considered safer than loans based on negotiable certificates of deposit (CD), the Cost of Funds Index (COFIX), and bank bonds sold by banks, it is cheaper.
As of the 5th of this month, the KOFR rate was 2.509%, 1.904 percentage points (P) lower than the 4.413% yield on five-year unsecured AAA bank bonds, the benchmark for mixed and fixed-rate mortgage loan rates.
The financial authorities, the Korea Federation of Banks, and commercial banks have formed a task force (TF) and are discussing ways to launch KOFR-based loan products. The Industrial Bank of Korea (IBK) and Korea Development Bank have decided to launch 1 trillion won in KOFR-based corporate loans in the second half. After that, commercial banks plan to roll out KOFR household loans following development of their IT systems.
The financial authorities plan to expand KOFR's share of use in Korea's financial market to 70% by 2030. The financial authorities expect financial consumers will have a wider range of loan products to choose from.