- Published 2026.11.09 09:13
Banks' October CD issuance hits yearly high of 7.775 trillion won
Short-term funding costs surge while long-term rates fall
Woori Bank's floating-rate loans exceed 69%, raising borrower default concerns
Commercial banks are sharply increasing issuance of certificates of deposit (CDs) to prepare for year-end liquidity ratio compliance and large deposit outflows, driving short-term funding rates higher. As long-term market rates fall while short-term rates alone surge, concerns are rising that the interest burden is being passed on to vulnerable small and medium-sized enterprises (SMEs) with loans tied to CD rates.
According to financial industry sources on Nov. 9, the yield on three-year Korea Treasury Bonds fell from 4.011% per annum at the end of September to 3.613% on Nov. 6, but the three-month CD rate, a key benchmark for corporate loans, rose from 3.22% to 3.34% over the same period. While long-term government bond yields dropped about 0.4 percentage point, CD rates rebounded, showing an anomaly for the first time since the Legoland crisis in October 2022.
The main cause of the short-term rate rise is funding pressure at major commercial banks. Banks are preparing for deposit outflows from large dividend payments by Samsung Electronics and SK hynix at the end of this month, while also needing to meet year-end regulatory indicators such as the liquidity coverage ratio (LCR). In addition, with a record 26.7 trillion won (about $20 billion) in bank bond maturities coming due in November, banks have concentrated on the CD market as an alternative to avoid pressure from bank bond issuance.
As a result, financial sector CD issuance in October surged 47% month-on-month to 7.775 trillion won (about $5.7 billion), the highest this year. Since October, Hana Bank issued 2.34 trillion won (about $1.7 billion), followed by Kyongnam Bank (1.47 trillion won (about $1.1 billion)), iM Bank (1.36 trillion won (about $1 billion)), and KB Kookmin Bank (1.32 trillion won (about $974 million)). Accordingly, one-year CD issuance rates at the five major commercial banks jumped from the late 2% range early this year to 4.02–4.05% after October.
The problem is that the rise in funding costs, which banks raised to meet regulatory indicators, is being fully passed on to marginal SMEs through the corporate loan structure. At Woori Bank, CD-linked corporate loan balances stood at 108.1864 trillion won (about $80 billion) as of end-September, accounting for 69.1% of total corporate won loans. That is a sharp 18.2 percentage point increase from 50.9% a year earlier. Over the past year, CD-linked floating-rate loans to SMEs at Woori Bank surged by 22.5 trillion won (about $17 billion), while fixed-rate loans that can hedge interest rate risk fell by 21 trillion won (about $15 billion), increasing borrowers' rate sensitivity.
Other commercial banks are in a similar situation. Hana Bank also has 60% of its total corporate loans tied to CD rates, while KB Kookmin Bank and Shinhan Bank each exceed 20%. As banks restructure their loan portfolios toward floating rates, which make it easier to shift funding risk to borrowers, relatively weak small and medium-sized companies are left exposed to short-term rate fluctuations.
This distorted loan structure is directly hitting the soundness of SMEs already at their limits. The share of marginal firms with an interest coverage ratio below 1, meaning they cannot even cover financial costs with operating income, jumped from 34.2% at end-December last year to 46.3% at end-March this year, a 12.1 percentage point rise in just three months. The delinquency rate for real estate and rental businesses at major banks including Industrial Bank of Korea (IBK) also rose to 1.99%, up 0.83 percentage point from a year earlier, bringing potential bad loans to the surface.
The short-term funding squeeze is spreading beyond CDs to the commercial paper (CP) market. The 91-day CP rate rose from 3.29% on Sept. 18 to 3.87% on Nov. 6, and its spread over the base rate (3.00%) widened sharply from 0.29 percentage point to 0.87 percentage point.
With year-end book closing by financial institutions and the Bank of Korea's monetary policy meeting this month approaching, short-term liquidity is likely to tighten further. A key question is whether banks can manage the boomerang risk that their one-sided funding measures may accelerate defaults among marginal borrowers and ultimately return as higher loan-loss provisions.
(Dollar figures are approximate, converted automatically at 1,000 won = $0.738, the rate on Nov. 9, 2026.)
※ This article is an AI translation of the Korean original published by Korea Credit News; it was checked by automated quality guards and published by the English edition desk.
