Woori makes Korea's first deal with Islamic bank

By Choi Kyong-ae

Woori Bank has become Korea’s first bank to make a financial transaction with an Islam bank, paving the way for local banks to earn interest gains from such deals with banks in Islamic states.

“As they expect higher interest gains from deals with banks in Islamic countries compared to deals here, Korean banks have reasons to make transactions with their Islamic counterparts as part of their income diversification strategy,” a bank official said Tuesday.

On Monday, Woori Bank extended $10 million in loans to the Qatar Islamic Bank through its Bahrain branch, the first of its kind for the state-owned bank, it said in a statement.

“The financial deal with Qatar Islamic Bank is aimed at securing new income sources overseas and cushioning the impact of market volatility resulting from a series of U.S. rate hikes expected throughout this year on the domestic market,” the official said.

Woori Bank is planning to expand financial deals with Islamic banks and then start a business in the long-term, extending its approach to Islamic countries such as Bangladesh, Dubai, Kuala Lumpur and Indonesia, he said.

Financial transactions with banks in the Islamic region have been ignored by Korean banks due to complicated transaction terms and ensuing tax issues. But this time, the Qatar Islamic Bank has acted as a local agent in Qatar for Woori Bank, it said.

Faced with low growth and low margins, Woori Bank has stepped up efforts to expand into Southeast Asian countries as it seeks to find new areas of growth, away from the saturated domestic market.

Woori Bank plans to make inroads into the non-banking sector of Southeast Asia as the banking industry there has yet to be developed. It will start with microfinance, merchant banking and installment financing services in the region, Woori Bank Chief Executive Lee Kwang-goo said late last month.

Woori Bank has acquired three financial firms in Southeast Asia _ a bank in Indonesia and a savings bank in the Philippines last year, and a microfinance company in Cambodia the previous year.

Woori earned 7.5 percent of its overall revenue from its overseas operations in the January-September period, up from 6.5 percent in the previous time frame, the bank said.

In the first nine months, Woori posted 968.6 billion won ($850 million) in revenue, slightly up from 966.3 billion won a year earlier, according to a regulatory filing.