South Korean state-owned banks are quickly making inroads intoIran, dangling tens of billions of dollars in loans, in tandem with a push by theAsian nation's government to seize opportunitiespresented by an end to a decade of international economic sanctions on the oil-richMiddle Eastern country.
South Korean President Park Geun-hye on May 1 visited Iran, accompaniedby an entourage of company executives including those from banks, according to Iran'sPressTV. The two countries agreed to triple annual trade between them to $18 billion,while South Korean lenders plan to offer US$25 billion of financing for infrastructuredevelopment in Iran.
Iran had been off limits since 2006 when it became subject tosanctions to choke off exports and inbound investment for failing to suspend a nuclearprogram. Most of the restrictions were lifted in January as part of a deal, althoughtrade with Iran in U.S. dollars and euros is still banned.
The currency limitation is a big caveat, but the South Koreangovernment is wasting no time to mobilize banks in its bid to capitalize on thebreakthrough.
Export-Import Bankof Korea is preparing a combined US$15 billion in loans. The policylender in March signed an agreement with Iran's central bank to set up a US$9 billioncredit program, which will be managed by the Iranian side, with the finance ministryto provide payment guarantees.
About US$2 billion of the funding will go to South Korean companiesthat will build six large-scale hospitals in Iran, according to Kim Eun-seok, asenior loan officer in the service industry finance department at Export-importBank of Korea. The lender also promised support for firms interested in gettinginvolved in the construction of other infrastructure, such as railroads, power plants,steel mills and petrochemical facilities.
"We expect it to help [South Korean] companies win bidsfor them in the near future," Kim said.
Export-import Bank of Korea, in addition, is arranging a US$4.5billion syndicated loan and other finance programs totaling US$1.5 billion, includinga US$200 million relending facility that will be set up with Parsian Bank and BankPasargad Plc.
Another policy lender, KoreaDevelopment Bank, signed a range of memorandums of understanding overtwo days from May 2 to establish partnerships in Iran, including one with .
More pacts may come. Export-import Bank of Korea and Korea DevelopmentBank are working with the Iranian government to set up trade finance avenues forSouth Korean companies seeking to enter the Middle Eastern country.
Among commercial banks, state-owned Woori Bank, one of the two South Korean lenders that haveopened accounts for the Iranian central bank in South Korea, on May 2 opened a representativeoffice in Tehran. Iranian authorities approved the establishment of the operationearlier than anticipated, in April, said an official in the international businessdepartment at Woori Bank.
The same day, the South Korean bank signed an agreement withBank Pasargad Plc to assisteach other in sharing information about Iran and providing financial services forSouth Korean companies operating there or with plans to expand into the nation.They will also exchange staff.
While the South Korean banks are rushing to Iran, many others,including big global banks, remain cautious. One major uncertainty that holds themback is what will happen to the ban on the use of U.S. dollars.
Export-Import Bank of Korea admits that is a problem. But itwould still rather lay the groundwork for business in Iran now, in hopes that thecurrency prohibition will be removed soon.
"The agreements were made in preparation of an expectedlifting of the remaining sanctions," an Export-Import Bank of Korea spokesmansaid. "We expect the sanctions will be gone soon. Otherwise, it is hard toexecute the plans."