COFIX Rebounds After 10 Months... Major Banks Slightly Raise Mortgage Loan Rates

[Image source=Yonhap News]

[Asia Economy Reporter Kim Min-young] The COFIX (Cost of Funds Index), which serves as the benchmark for variable-rate mortgage loan interest rates in the banking sector, rose for the first time in 10 months, leading to a slight increase in mortgage loan rates at major commercial banks linked to it.

According to the banking sector on the 16th, KB Kookmin Bank, Woori Bank, and NH Nonghyup Bank raised their variable-rate mortgage loan interest rates based on new loan amounts by 0.08 percentage points from the previous day.

Kookmin Bank adjusted its rates from 2.62?3.82% per annum to 2.70?3.90% per annum based on the new COFIX. Woori Bank raised its rates from 2.54?3.84% to 2.62?3.92%, and Nonghyup Bank increased from 2.23?3.64% to 2.31?3.72%, respectively.

This fully reflects the rise in COFIX. The COFIX based on new loan amounts for September, announced by the Korea Federation of Banks the previous day, was 0.88%, up 0.08 percentage points from August. This marks the first rebound in 10 months.

Shinhan Bank applied interest rates of 2.73?3.98% based on new loans and 2.73?3.98% based on outstanding balances, both raised by 0.10 percentage points from the previous day.

COFIX refers to the weighted average interest rate of funds raised by eight commercial banks including Shinhan, Kookmin, Hana, and Woori Banks. It rises or falls reflecting increases or decreases in the interest rates of deposit products such as actual deposits, savings, and bank bonds handled by banks.

The outstanding balance-based COFIX includes fixed deposits, installment savings, mutual installment savings, housing installment savings, negotiable certificates of deposit, repurchase agreements, commercial paper sales, and financial bonds (excluding subordinated bonds and convertible bonds).

The new outstanding balance-based COFIX adds other deposits, borrowings, and settlement funds to the existing outstanding balance COFIX target products. The rise in COFIX indicates that banks' funding costs have increased.

This year, due to the impact of the novel coronavirus (COVID-19), the Bank of Korea lowered the base interest rate to an all-time low, causing COFIX to decline. Consequently, linked mortgage loan interest rates also continued to fall, with Nonghyup Bank lowering its variable mortgage loan rate based on new loan amounts to as low as 1.96% in July. The other four banks also reduced their minimum rates to the 2.2?2.4% range.

Banks defended against the rate decline by raising additional margins and adjusting preferential rates offered to customers, resulting in a slight increase in the new COFIX in September and a rise in mortgage loan interest rates. As of this date, the minimum interest rate is 2.31%.

Hana Bank, which uses the 6-month financial bond as a benchmark, has a variable mortgage loan interest rate based on new loan amounts of 2.623?3.923% per annum as of today, up 0.011 percentage points from a month ago.