KDB and IBK to offer 1 trillion won KOFR loans

The two policy banks will each supply 500 billion won of KOFR-based corporate loans from Oct. 26, according to the Financial Services Commission. Korea Development Bank’s product is aimed at affiliates of large groups as well as small and mid-sized firms, with extra rate cuts of up to 0.65 percentage point for smaller companies and 0.05 point for regional firms or those relocating outside Seoul. IBK will focus on emergency working capital for smaller businesses and offer regional companies discounts of up to 0.3 point.

The government is using those balance sheets to build market adoption before turning off the old plumbing. It plans to stop new KORIBOR-based lending in principle from April next year, after saying in March that it wanted to improve confidence in benchmark rates and strengthen consumer protection. That timeline is significant because KORIBOR remains deeply embedded in Korea’s credit system: financial sector exposure stood at 240.7 trillion won at the end of March, with 239.5 trillion won of that in loans. Roughly 80% of the exposure matures within a year, suggesting the stock of KORIBOR-linked loans should roll off relatively quickly once new issuance stops.

The reform also extends beyond bank lending. KOFR’s use in interest-rate swaps rose to a provisional 18.5% in the third quarter, and regulators want that share above 70% by June 2030. That target underscores the broader objective: to create a single, more robust domestic benchmark across loans, derivatives and eventually bond markets, rather than leaving pricing fragmented across legacy rates.

For investors, the near-term read-through is mostly about banks’ ability to adapt without compressing margins or creating repricing risk. KOFR-based loans can improve benchmark credibility, but they also require systems changes, hedging updates and customer education. Any mismatch between loan pricing and swap market depth could create basis risk, particularly for lenders with sizable floating-rate books.

There is also a secondary regulatory layer. Authorities are tightening oversight of COFIX, another important Korean lending benchmark, and are considering whether to designate it as a key benchmark under the Financial Transaction Benchmark Act. That suggests benchmark reform in Korea is not a one-off cleanup but a broader effort to harden the entire interest-rate framework after years of criticism that quoted-bank benchmarks were too easy to game.

The immediate beneficiary is the reform agenda and borrowers seeking clearer pricing. The main losers are legacy KORIBOR structures and institutions still reliant on the old benchmark. For markets, the next catalyst is whether the first wave of KOFR lending draws meaningful demand and whether banks can shift a large stock of contracts before the April cutoff without disruption.