Local banks to set mortgage rates at funding costs next year

SEOUL, Dec. 17 (Yonhap) -- South Korean banks are expected to set their mortgage
rates in line with actual funding costs next year rather than with the rate of
certificate of deposits (CDs), in a bid to stabilize lending fluctuations, an
industry association said Thursday.
According to the Korea Federation of Banks, local lenders will start linking
their mortgage rates to their wider funding sources, including bank bonds, time
deposits as well as CDs.
"The planned change in the rate-setting system is intended to reduce sharp swings
in lending rates which move rapidly in accordance with market rate changes every
three months," said a researcher at the association.
Domestic banks came under fire last month as the nation's anti-trust agency came
closer to launching an investigation over their suspected fixing of mortgage
rates.
The move came after mortgage borrowers filed complaints with the Fair Trade
Commission that the home-loan rates fail to reflect falling market interest
rates.
Currently mortgage rates are tied to CDs, which usually have a three-month
maturity and a high volatility in yields. CDs account for only 10 percent of
banks' total funding.
pbr@yna.co.kr
(END)