Korea Housing Finance Corporation to Serve as a Catalyst for Private Long-Term Fixed-Rate Loans

Kookmin and Shinhan Issue First 10-Year Covered Bond with Payment Guarantee

Shinhan Bank Launches 10-Year Fixed-Rate Mortgage Loan

Korea Housing Finance Corporation (HF) has taken the lead as a catalyst to promote the supply of long-term, fixed-rate mortgage loans by private financial institutions.

HF has enabled KB Kookmin Bank and Shinhan Bank to issue "covered bonds with payment guarantees" through its covered bond payment guarantee system.

This system was designated as an innovative financial service at the regular meeting of the Financial Services Commission on April 3.

Covered bonds are bonds issued under the "Act on the Issuance of Bonds with Dual Recourse," which allow bond investors to have a claim against the issuing institution as well as preferential repayment over third parties from the pool of underlying assets provided as collateral by the issuer.

If the bond-issuing financial institution fails to repay the principal and interest to the bond investors, HF will repay the principal and interest to the bond investors on behalf of the issuer.

Utilizing the corporation’s payment guarantee, KB Kookmin Bank issued covered bonds with 5-year maturities (KRW 200 billion, 3.16%) and 10-year maturities (KRW 100 billion, 3.19%), while Shinhan Bank issued 10-year covered bonds (KRW 300 billion, 3.19%). These rates are about 0.06 to 0.44 percentage points lower than the rates for bank bonds (AAA) with the same maturities.

This issuance marks the first time HF has supported the issuance of covered bonds by private financial institutions through the covered bond payment guarantee system, and it is also the first case of issuing 10-year maturities in the domestic covered bond market, which has mainly focused on 5-year maturities.

In addition, Shinhan Bank launched a 10-year cycle fixed-rate mortgage loan product along with the issuance of 10-year covered bonds, which is a meaningful achievement that opens up the possibility of using covered bonds as a funding source for long-term, fixed-rate mortgage loans?the original purpose of covered bonds.

HF is also preparing to introduce a covered bond re-securitization program, under which it will directly purchase long-term covered bonds issued by banks, in order to continuously foster the foundation for the supply of long-term, fixed-rate mortgage loans by encouraging banks to issue covered bonds.

Choi Junwoo, President of HF, said, “This support by the corporation is the first step toward revitalizing long-term, fixed-rate mortgage loans in the private sector,” and added, “We expect that the range of fixed-rate loan options available to financial consumers will broaden.”

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