September new COFIX rises 0.25 percentage points to 3.43%
The new COFIX, the benchmark rate for variable-rate bank loans, climbed to 3.43% in September — its highest level in two years and three months — signaling another round of increases in variable mortgage rates.
According to the Korea Federation of Banks, the September new COFIX rose 0.25 percentage points from the previous month to 3.43%. The monthly gain was the largest in three years and 10 months.
The new COFIX, based on newly extended funds, rose from 2.81% in March to 2.89% in April, then climbed to 2.90% in May, 3.05% in June and 3.18% in July. It held steady in August before resuming its upward trend in September.
The outstanding-balance COFIX rose 0.10 percentage points, from 3.05% to 3.15% in August. The new outstanding-balance COFIX also edged up 0.08 percentage points, from 2.71% to 2.79%.
The rise in COFIX is largely attributed to the Bank of Korea's recent benchmark interest rate hikes. As major commercial banks raised deposit rates — including those on fixed-term deposits — in line with the central bank's tightening, their funding costs increased accordingly.
COFIX is the weighted average interest rate on funds raised by eight domestic banks: NongHyup, Shinhan, Woori, SC First, Hana, IBK, Kookmin and Citibank Korea. It reflects changes in rates on deposit and savings products, as well as bank bonds, that the banks handle. When banks' funding costs rise, COFIX rises with them — and variable-rate mortgage rates tied to the index can be adjusted upward as a result.
The new COFIX reflects only funds newly raised in a given month, meaning it responds relatively quickly to market rate movements. The outstanding-balance and new outstanding-balance versions, by contrast, incorporate existing funding as well, so they tend to track market shifts more slowly. During periods of rising rates, fixed-rate home loans are generally considered more advantageous than variable-rate mortgages.
Commercial banks are set to apply the newly disclosed COFIX rate to their mortgage products starting Friday.
hyuk@heraldcorp.com
