Korea’s Financial Services Commission (FSC) on 26 October published a progress report on benchmark rate reform that turns the March reform plan into dated obligations for banks. Financial companies will in principle stop making new loans priced off KORIBOR, the Korea Inter-bank Offered Rate, from April 2027. Targets for the share of overnight index swaps (OIS) referencing KOFR, the Korea Overnight Financing Repo Rate, rise each year to 70% by June 2030. Banks also face a new quota for floating rate notes (FRNs) tied to KOFR. In RegMemo’s analysis, the report shows Korea running the LIBOR transition through administrative guidance from the Financial Supervisory Service (FSS) with a fixed calendar, and the hardest dates fall on loan books and on the CD rate, which the authorities plan to drop as a critical benchmark by the end of 2030.
KORIBOR loans end in April 2027, with guidance due early next year
The FSC says KORIBOR is calculated in a similar way to the “now defunct LIBOR”, and so its use will be phased out. The FSS will issue administrative guidance in early 2027 under which financial companies stop handling new KORIBOR-based loans from April 2027, and it has set up a taskforce to draft the guidelines.
For lenders, that leaves about five months between the guidance and the cut-off. Loan documents, pricing systems and customer disclosures for floating rate business loans will need a replacement rate. The release does not say what happens to existing KORIBOR loans that run past April 2027, or whether fallback language will be required. Those are the questions that took the most time in the LIBOR transition. In the UK, the Financial Conduct Authority announced in March 2021 the dates on which LIBOR settings would cease, and firms spent the following years moving legacy contracts.
The FSC expects COFIX, the Cost of Funds Index published monthly by the Korea Federation of Banks, to pick up loan business as KORIBOR and CD rate lending declines. The federation has added an independent audit review of COFIX calculations from June 2026 and, from the second quarter, raised its quarterly self-inspection to the standard applied to critical statutory benchmarks under the Act on the Management of Financial Benchmarks. Banks will self-inspect their COFIX inputs and internal controls in the fourth quarter of 2026, followed by an external FSS inspection. The FSC says it may later designate COFIX as a critical statutory benchmark, which would bring it under the full statutory regime.
Swap targets rise by 15 points a year
The FSS raised its KOFR-OIS target in June 2026. The share of OIS trades referencing KOFR had to reach 10% in the year to June 2026; the market reached 12.1%. The target is now 25% for July 2026 to June 2027, rising by 15 percentage points a year to 70% or more by June 2030. The FSC puts the share at about 18.5% in the third quarter of 2026, so dealers need to add about 6.5 points by June to meet the current target.
The Bank of Korea plans to give more weight to KOFR-based OIS and FRN activity when it selects counterparties for open market operations. That gives dealers a direct reason to trade KOFR: a bank that wants to stay in the central bank’s operations has to show KOFR volume.
Banks get an FRN quota, and policy lenders carry more
The FSS also introduced a KOFR-FRN issuance target for banks in June 2026. In the year to June 2027, at least 10% of a bank’s FRN issuance must reference KOFR, rising by 10 points a year to 50% or more by June 2031. The three policy financial institutions, Korea Development Bank (KDB), Industrial Bank of Korea (IBK) and the Export-Import Bank of Korea, have a target 15 points higher each year: 25% in the first year and 65% by June 2031.
Issuance is already ahead of the first-year numbers. Between January and September 2026, banks including policy institutions issued about KRW20.5 trillion of KOFR-FRNs, about 32.3% of all FRNs issued. The quota sets a floor, and a market that already issues a third of FRNs in KOFR can meet it.
KDB and IBK are also putting KOFR into lending. From 26 October, the two banks offer KOFR-based business loans worth KRW1 trillion in total, KRW500 billion each, with better rates for small and mid-sized companies outside the Seoul metropolitan area. Those loans give corporate borrowers a KOFR product to compare with KORIBOR before the 2027 cut-off.
Most of the timetable rests on supervisory guidance
Most of the steps in the report rest on FSS administrative guidance: the OIS targets, the FRN quota and the coming KORIBOR cut-off. That lets the authorities change targets quickly, as they did in June, but it also means the targets carry supervisory weight and are not statutory rules. The statutory piece is the Act on the Management of Financial Benchmarks, which already covers the CD rate and could extend to COFIX.
The FSC and the FSS will hold investor relations events in London and Hong Kong in November to promote KOFR to global investors. Foreign banks that lend to Korean companies off KORIBOR will need a replacement rate by April 2027, and those that hedge won rate exposure through OIS will be trading in a market where KOFR volumes are set to rise each year.
What to watch
- FSS administrative guidance in early 2027 on ending new KORIBOR loans, and any treatment of legacy contracts.
- April 2027: financial companies stop making new KORIBOR-based loans.
- June 2027: end of the second-year period, with a 25% KOFR-OIS target, a 10% bank KOFR-FRN target and 25% for policy lenders.
- FSS external inspection of COFIX calculations after the fourth quarter 2026 self-inspection, and any FSC decision to designate COFIX as a critical benchmark.
- End of 2030: planned removal of the CD rate as a critical statutory benchmark.
Primary sources
- Financial Services Commission, FSC Announces Key Progress on Benchmark Rate Reform, 26 October 2026
- Financial Conduct Authority, Announcements on the end of LIBOR, 5 March 2021
Photo (cropped): S h y numis, CC BY 4.0 via Wikimedia Commons
