Korea seeking to expand financial ties with Iran

Korea is moving to expand financial ties with Iran following a landmark nuclear accord that lifted international sanctions on the oil-rich country, market watchers said Thursday.

Financial sector sources said a working-level delegation made up of officials from the finance and foreign ministries, along with local lenders, will be in Tehran for three days starting Saturday.

They plan to meet with officials from Iran's central bank to discuss the future settlement of account arrangements that are critical for expanding economic ties.

"Discussions will be centered on maintaining the current Korean won based settlement system that has been in place since 2010 and adding the euro and other currencies as a new medium of exchange," an insider said.

International sanctions imposed on Iran were lifted as of Jan. 17 allowing South Korean firms to freely trade with the Middle East country. The changes mean local companies no longer have to get permission from the Bank of Korea to conduct financial transactions with Iran, although Washington's stance of not allowing the dollar to be used to settle accounts with Iran, is forcing South Korea to seek alternative payment methods.

Iran's central bank has maintained a Korean won account that has been used to allow limited trade between the two countries in the past, with the two sides examining the option of expanding the medium to other currencies like the euro.

Iran's won account currently in place at Woori Bank and the Industrial Bank of Korea is estimated to be worth over 3 trillion won (US$2.5 billion).

Talking to reporters earlier in the week, Vice Finance Minister Choi Sang-mok pointed out that the dollar is off limits at this point. He stressed that while discussions have yet to take place and nothing is for certain, Tehran may retain the current won-based trading system while expanding its options to make it easier for companies to trade. 

Vice Finance Minister Choi Sang-mok (Yonhap)

In addition to action being pursued by the government, local lenders said they will carry out market research and gauge growth potential.

Woori Bank said it plans to dispatch market researchers familiar with the region to Iran, with the Industrial Bank of Korea sending notices to clients on how to settle accounts and government guidelines for conducting trade. KEB Hana Bank said it is in the process of re-establishing bank accounts with Iran lenders.  

Local banks, meanwhile, said they will be sending officials to the South Korea-Iran economic cooperation committee meeting slated for late February that will help them expand cooperative ties with Iranian counterparts down the road.

Despite taking proactive steps, local banks are more cautious about actually entering the Iranian market.

"Iran has relatively open rules on capital control, so getting in is not difficult, but there is a need to determine if there is real market potential for making a commitment," said a local banker, who declined to be identified. (Yonhap)