The Cost of Funds Index (COFIX), which serves as the benchmark for variable interest rates on residential mortgage loans at banks, recorded its largest increase in nearly four years.
According to the Korea Banking Finance Association on the 15th, COFIX based on new transactions in September rose by 0.25 percentage points from the previous month (3.18%) to 3.43%. This marks the largest increase since November 2022 (0.36 percentage points), a span of three years and ten months.
COFIX is the weighted average interest rate on funds raised by eight domestic banks through deposits, savings accounts, bank bonds, and other instruments. It is an indicator showing how much banks spend to raise funds; as COFIX rises, variable mortgage rates that use it as a reference rate also increase.
The recent rise in COFIX is interpreted as being driven by banks' consecutive increases in deposit interest rates in September. As corporate funds flowed out en masse due to factors such as corporate tax payments, banks raised deposit rates to secure deposits from relatively stable individual customers. Rising deposit rates increase banks' funding costs, leading to a higher COFIX.
At the end of 2022, when COFIX last experienced such a sharp rise, banks' funding costs also spiked. At that time, the Bank of Korea raised its base rate by 0.50 percentage points in October and 0.25 percentage points in November, while the bond market tightened due to the Legoland incident, prompting banks to repeatedly raise deposit rates. Consequently, COFIX surged by 0.58 percentage points in October 2022 and by 0.36 percentage points in November.
Meanwhile, COFIX based on outstanding balances rose by 0.10 percentage points from 3.05% to 3.15% in September. Because the balance-based COFIX includes previously raised funds in its calculation, interest rate fluctuations are reflected more gradually than in the new-transaction-based index. The new balance-based COFIX, which also includes settlement funds such as demand deposits, rose by 0.08 percentage points from 2.71% to 2.79%.
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