Korean banks to set mortgage rates at funding costs

SEOUL, Jan. 20 (Yonhap) -- South Korean banks plan to set their mortgage lending
rates by taking into account the broader costs of funding sources starting next
month, an industry association said Wednesday.

According to the Korea Federation of Banks, it will announce a benchmark rate for
home-backed lending every month by reflecting a variety of funding costs,
including bank bonds and time deposits, in a bid to reduce sharp swings in
lending rates.
Mortgage lending rates have been tied to returns on certificate of deposits
(CDs), which account for about 10 percent of bank's funding sources.
Korean lenders have been criticized for continuing to charge higher spreads on
home-backed loan rates despite the fact that funding costs have been reduced due
to the easing of the global financial crisis.
Record-low borrowing costs, made by the key interest rate cuts, brought down
market rates including the rates on CDs. But mortgage lending rates remained at a
high level as lenders stuck to imposing higher spreads on the loan rate, citing
worsening profitability.
"By reflecting banks' actual funding costs, home-backed lending rates are
expected to be set reasonably," the association said in a statement.
sooyeon@yna.co.kr
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