South Korea's Financial Supervisory Service (FSS) extended mandatory Certificate of Deposit (CD) issuance requirements for major banks for one additional year from August 21, 2026 to August 20, 2027, according to financial industry sources on the 22nd. The guidance applies to six banks: KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank, NH Nonghyup Bank, and Korea Development Bank, down from seven banks previously as SC First Bank was excluded. The FSS maintains this annual administrative guidance to ensure CD interest rates reflect actual market transactions and funding conditions, which serve as benchmark rates for corporate and some household loans. The extension comes as market interest rates continue rising amid expectations of potential additional base rate increases by the Bank of Korea, raising concerns that the measure could increase interest burdens for borrowers with CD-linked loans.
FSS Extends CD Issuance Requirements Through August 2027
The FSS will implement CD issuance administrative guidance for six banks from August 21, 2026 to August 20, 2027. Target banks must maintain average balances of their mandatory issuance volumes across two six-month periods: the first period from August 21, 2026 to February 20, 2027, and the second period from February 21, 2027 to August 20, 2027. This structure prevents concentrated issuance at specific times and maintains market conditions where CD interest rates can be calculated based on actual transactions.
Six Banks Subject to Mandatory CD Issuance
The six banks subject to the guidance are KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank, NH Nonghyup Bank, and Korea Development Bank. These banks must issue CDs equivalent to 0.57% of their CD-linked loan balances. The FSS imposes CD issuance obligations only on banks that handle CD-linked loans above a certain scale, based on the principle that banks using CD rates as lending benchmark rates should participate in CD issuance to ensure rates reflect actual funding conditions in the banking sector.
SC First Bank Excluded from 2026 Guidance
SC First Bank was removed from the administrative guidance target list this year. The bank's CD-linked loan balance fell below the application threshold of 3% of total loans. The FSS applies CD issuance requirements only to banks maintaining CD-linked loans at or above this threshold level.
Mandatory Issuance Volume Remains at 2 Trillion Won
The mandatory issuance ratio decreased slightly from 0.60% last year to 0.57% this year. However, reflecting changes in target banks' CD-linked loan balances, the total mandatory issuance volume is expected to remain at approximately 2 trillion won, similar to last year's level. A senior FSS official stated that the mandatory issuance ratio was adjusted to maintain the total issuance volume at approximately 2 trillion won, reflecting changes in CD-linked loan balances of target banks.
FSS Maintains CD Market Stability Since 2015
The FSS has maintained bank CD issuance at certain levels through annual administrative guidance since 2015. Banks reduced issuance following the Fair Trade Commission's investigation into CD rate collusion, and the introduction of loan-to-deposit ratio regulations further decreased CD issuance incentives, causing rapid market contraction. Reduced CD issuance and trading make it difficult to calculate interest rates based on actual transactions. When trading volume is insufficient, a small number of issuances or securities firm quotes can have greater impact on CD rates, which can reduce the representativeness and reliability of lending benchmark rates.
Rising Interest Rates May Increase Borrower Costs
In a rising interest rate environment, this system may burden borrowers. If market interest rates reflect expectations of additional base rate increases by the Bank of Korea, new CDs are likely to be issued at higher rates than before. As administrative guidance maintains steady CD issuance and trading, higher funding costs are more faithfully reflected in CD rates, which can directly affect rates on some corporate loans using CD rates as benchmark rates. For household loans, while the proportion linked to CD rates is not large, market observers note that if expanded CD issuance affects other short-term funding rates such as bank bonds, some mortgage loan rates may experience indirect spillover effects. An FSS senior official explained that the purpose of administrative guidance is not to increase CD issuance volume but to ensure banks handling CD-linked loans maintain a certain level of CD market together, maintaining a market foundation where CD rates can be stably calculated based on actual transactions.
FAQ
Q: Why did the FSS extend mandatory CD issuance requirements for South Korean banks through August 2027?
A: The FSS extended the requirements to maintain market conditions where CD interest rates can be calculated based on actual transactions. The guidance ensures banks using CD rates as lending benchmark rates participate in CD issuance, reflecting actual funding conditions in the banking sector.
Q: Which banks are subject to the mandatory CD issuance guidance in South Korea?
A: Six banks are subject to the guidance from August 21, 2026 to August 20, 2027: KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank, NH Nonghyup Bank, and Korea Development Bank. SC First Bank was excluded because its CD-linked loan balance fell below 3% of total loans.
Q: What is the mandatory CD issuance volume for South Korean banks in 2026?
A: Target banks must issue CDs equivalent to 0.57% of their CD-linked loan balances. The total mandatory issuance volume is expected to remain at approximately 2 trillion won, similar to last year's level, despite a slight decrease in the mandatory issuance ratio from 0.60% to 0.57%.
