By Kim Tong-hyung
Korea’s government-owned Woori Bank and Industrial Bank of Korea (IBK) are in a disagreement with Iran’s central bank over interest rates on accounts used for executing business transactions between the countries.
The Central Bank of Iran (CBI) threatened Korean diplomats in Teheran that it will stop using the accounts if the rates aren’t lifted, according to the Seoul-based banks, which said the accounts were still operating normally as of Thursday.
A failure to settle the differences quickly could hurt the 2,700 or so Korean firms operating in Iran, which in the past few years has grown into one of the country’s biggest markets in the Arab region.
Korea has been desperate to keep its economic connections with Iran alive, despite being pressed into taking part in U.S.-led efforts to impose sanctions on Iranian firms and individuals to weaken Teheran economically and derail its alleged pursuit of nuclear weapons.
Since September 2010, when Korea became first involved in the international sanctions on Iran, Korean banks have been handling financial transactions with Iran through won-denominated accounts at Woori and IBK, which are connected to the Iranian central bank.
The setting benefited Korean companies, which avoided a business disruption in a key growth market, and Iran too as the country exports a significant amount of oil to Korea every year. Even with the sanctions enforced, Korean exports to Iran increased by 30 percent last year.
It could no longer be said that everyone’s happy.
The Iranian central bank says it now has a problem with the 0.1 percent interest rate tagged to the Woori and IBK account. It asserts that the rate should be raised to around 3 percent, similar to the conventional level of rates Korean banks offer for savings deposits. Woori and IBK counter that 0.1 percent is an acceptable rate here for trade-specific accounts.
The elevation in fuel costs over the past year meant that the money transferred through the bank accounts between the two countries was considerably larger than anticipated. There is currently around 5 trillion won (about $4.4 billion) combined in the Woori and IBK accounts, with the sum breaching 6 trillion won at one point in previous months, according to Woori officials.
Slap 3 percent interest rates on these accounts and the Iranian central bank would see an extra annual income of about 150 billion won. Woori and IBK officials say it would be hard for the banks to provide such high interest, considering the difficulty and cost of managing these accounts under international scrutiny.