The Cost of Funds Index (COFIX), based on new loan origination amounts and serving as an indicator of variable interest rates on mortgage loans, has shown a decline for four consecutive months.
The Korea Federation of Banks announced on the 15th that the COFIX based on new loan origination amounts last month fell by 0.03 percentage points from the previous month to 3.59%. The COFIX based on outstanding loan balances decreased by 0.03 percentage points to 3.78%, and the COFIX based on new outstanding balances dropped by 0.05 percentage points to 3.19%.
COFIX represents the weighted average interest rate of funds raised by eight domestic banks. It reflects increases or decreases in interest rates on deposit products such as savings and time deposits, as well as bank bonds, that banks actually handle.
Last year, COFIX showed a continuous upward trend due to competition among commercial banks for deposits. The COFIX based on new loan origination amounts, which was 3.66% in August, rose to 3.82% in September and 3.97% in October, reaching 4.00% in November. This was the first time in 11 months since December 2022 (4.2%) that the COFIX based on new loan origination amounts exceeded the 4% level.
However, after the U.S. Federal Reserve signaled the end of tightening in November, COFIX reversed to a decline within a month and continued to fall for three consecutive months this year. This was influenced by market expectations of interest rate cuts, leading to a decline in bank bond yields and a downward trend in banks’ savings and time deposit rates.
The short-term COFIX, based on the announced interest rates over the past four weeks, ranged from 3.56% to 3.64%. The short-term COFIX is selected based on short-term funds with a contract maturity of three months.
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