Woori Bank launches aval-based service

A model holds a sign promoting Woori AVAL service launched by Woori Bank, Sunday, Courtesy of Woori Bank

By Lee Kyung-min

Woori Bank has launched an “aval-based” service to help local firms complete safe business transactions with their foreign counterparts, it said Sunday.

Woori is the first Korean bank to initiate the advanced, good faith-based financial service.

Aval refers to a guarantee that a third party adds to a debt obligation.

Under the Woori AVAL service, the bank will ensure payment to foreign exporters for goods imported by local firms in case the latter defaults, even when both parties have not signed a letter of credit (LC).

Only large conglomerates and their affiliates maintain LC-based transactions, a complicated and time-consuming process for small- to medium-sized enterprise (SMEs) that don't have the same resources and manpower.

“Establishing an LC-based business relationship remains the norm with large companies, but it takes several months to complete,” a Woori official said.

“Furthermore, having necessary papers ready from related certified institutions followed by sending them back and forth is a very costly process for small firms, not to mention people with expertise in both the related business and language are needed,” he added.

Likely to gain the most from the service are SME customers that have an established credit history with the bank and are seeking to expand business presence overseas.

“From the foreign exporter's point of view, they are highly concerned over whether they will be paid for sales made to a Korean company that to them has little to no credit or name value. That's where we step in,” he said.

“Our service is expected to not only boost convenience for smaller firms but also help them build long-term business relationships with foreign partners,” the official added.

The service is available to corporate customers with good credit for whom the bank allows some period of time between when their bill is dated and when they should make the payment.

The service is an indication that Woori has moved closer to earning recognition as a global financial services provider.

“The aval service requires well-established credit, name value and recognition on the global stage, commonly provided by the U.S., France and Germany with advanced financial services. We will continue efforts to develop services to help boost our global standing,” he said.