December KOFIX 3.84%... Back Below 4%

Impact of Interest Rate Cut Expectations on Decline in Bank Bond Yields

The Cost of Funds Index (COFIX), a benchmark for variable interest rates on mortgage loans, based on new loan amounts, has fallen below 4% again after a month. This is the result of reduced funding costs due to a decline in market interest rates.

A notice regarding small business collateral loans is posted at a major bank in Seoul. Photo by Jinhyung Kang aymsdream@

The Korea Federation of Banks announced on the 15th that the COFIX based on new loan amounts in December dropped by 0.16 percentage points from the previous month to 3.84%. The COFIX based on outstanding loan balances decreased by 0.02 percentage points to 3.87%, and the COFIX based on new outstanding balances fell by 0.06 percentage points to 3.29%. This reduction in COFIX will be applied starting from the 16th.

COFIX is the weighted average interest rate of funds raised by eight domestic banks, reflecting increases or decreases in interest rates on deposit products such as savings and time deposits, as well as bank bonds actually handled by the banks.

At the end of last year, COFIX showed a continuous upward trend due to competition among commercial banks for deposits. The COFIX based on new loan amounts, which was 3.66% in August, rose to 3.82% in September, 3.97% in October, and reached 4.00% in November. It was the first time in 11 months since December 2022 (4.2%) that the COFIX based on new loan amounts exceeded 4%.

However, in November, after the U.S. Federal Reserve signaled the end of tightening, COFIX turned downward again within a month. This was influenced by market expectations of interest rate cuts, which led to a decline in bank bond yields and a downward trend in banks’ savings and time deposit rates.

This content was produced with the assistance of AI translation services.