Bank of Korea lifts KOFR swap target to 25 percent as benchmark overhaul advances

The Bank of Korea said Monday it has raised the second-year target for KOFR-based interest-rate swaps to 25 percent of financial-sector swap trading, after the first-year goal was exceeded, as part of its push to move the market off the Coribo benchmark.

KOFR-linked swaps accounted for 12.1 percent of interest-rate swap transactions in the first year of the programme, from July 2025 to June 2026, above the 10 percent target. The share reached a provisional 18.5 percent in the third quarter of 2026.

Banks have moved faster on floating-rate notes. Lenders including policy finance institutions issued about 20.5 trillion won ($15.5 billion) of KOFR-based floating-rate bonds in the first nine months of the year, provisional figures show, or 32.3 percent of all such issuance and far above the 10 percent goal set for July 2026 to June 2027, compared with about 5.8 trillion won ($4.38 billion) issued last year.

Corporate lending on the benchmark is also starting. On Monday, the Korea Development Bank launched a 500 billion won ($377 million) short-term loan facility for companies priced off KOFR, and the Industrial Bank of Korea introduced a 500 billion won ($377 million) short-term liquidity loan programme, for a combined 1 trillion won ($755 million). Both are priced at the 30-day backward-looking average of KOFR. The Korea Development Bank offers small and medium-sized companies preferential rates of up to 0.65 percentage points, with an additional 0.05 percentage points for firms based in or relocating to provincial areas; the Industrial Bank of Korea offers up to 0.3 percentage points for provincially based companies.

The Bank of Korea is also preparing for the retirement of Coribo. New lending based on the benchmark is scheduled to stop in principle from April 2027, with the Financial Supervisory Service due to implement administrative guidance early that year. The watchdog has run a task force on the transition since June 2026.

Coribo exposure across the financial sector stood at 241 trillion won ($182 billion) at the end of March 2026. Loans accounted for 240 trillion won ($181 billion), or 99.5 percent, of which 193 trillion won ($146 billion), or 80.4 percent, matures in one year or less.