(LEAD) Korean banks to set mortgage rates at funding costs

(ATTN: ADDS details in para 4-5, 8-10)
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.
The benchmark interest rate dubbed COFIX will be determined by averaging
interests paid on capital funding by nine major lenders, including Kookmin Bank
and Woori Bank, and made public on the 15th day of every month, the trade
association said.
The new measure to reform banks' mortgage rate decisions came as Korean lenders
have come under fire 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 stemming from 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.
Amid growing bitterness over heavier-than-expected rates on mortgage loans, a
flurry of banks announced cuts on such lending.
Top lender Kookmin Bank said on Jan. 13 it will lower the interest rate for
mortgage loans by up to 0.3 percentage point in a bid to "share the burden of
clients and citizens".
Earlier in the month, the state-run Industrial Bank of Korea also slashed its
rates by as much as 0.5 percentage point.
pbr@yna.co.kr
(END)

Delete & Prev | Delete & Next