Iran, Korean banks in rare financial spat

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Korean won banknotes. Photo – Tomohiro Ohsumi/Bloomberg

Iran’s central bank has threatened to close its Korean currency-based transaction settlement accounts opened at two South Korean banks amid a spat over higher deposit rates on the accounts, sources said Thursday.

According to industry sources, Iran has notified two local state-owned banks – Woori Bank and the Industrial Bank of Korea (IBK) – of not using the Korean-currency accounts, estimated at around 5 trillion won ($4.42 billion), anymore mainly due to lowly set deposit rates on the accounts and asked the Korean government to find alternatives.

In 2010, South Korea agreed with Iran to set up a won-based transaction settlement arrangement for bilateral trade, mainly to facilitate the crude oil imports, and insisted that the move did not go against international sanctions imposed by the US and EU to punish Iran for its nuclear ambitions.

As part of such efforts, Woori Bank and the IBK were allowed to open won-based accounts through which the Korean won is used to settle payments via Iran’s central bank. Korean companies use these accounts to pay out money for oil imports.

Spokesmen at Woori Bank and the IBK said that sustained rises in oil costs snowballed the balance of deposits, but lowly-set deposit rates on the accounts made it difficult for Iran’s central bank to earn interest income.

“As far as we know, Iran and (the Korean government) are in talks to find solutions,” said a Woori Bank spokesman. “Iran’s potential withdrawal is seen as a concern as it could hurt Korean exporters.”

“I have never heard of that,” A spokesman at the Iranian Embassy in Seoul said while adding that he will check over whether the Iranian central bank decided to do so.

The two banks declined to comment on the balance of the deposits and rates, citing their internal policy. A local media earlier said that the rate on such accounts stands at around 0.1%.

Seoul is mulling resuming oil imports from Iran as early as next month after imports have been suspended since July due to a European Union ban on insuring Iranian oil shipments due to Tehran’s suspected nuclear programme.

Iran is South Korea’s third-largest market in the Middle East with exports to the country rising 32% on-year to $6.07 billion in 2011.

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