South Korean companies will be able to transact with their Iranian counterparts in the euro currency instead of Korean won from next Monday, removing the obstacle that hindered vitalizing bilateral trade between Korea and Iran where business opportunities are booming after the international sanctions were lifted earlier this year.

Minister of Strategy and Finance Yoo Il-ho on Thursday after the regular economic policy meeting said that the euro-based payment arrangement will be implemented from Monday via Woori Bank, Shinhan Bank, and KEB Hana Bank on the Korean end.

Korean firms had to settle accounts in local currency instead of the U.S. dollar under the U.S-led sanctions on Iran for nuclear weapon activity. Settlements in the euro, common for Iranian companies, will likely serve as traction to ventures in the Middle East country.

Under the arrangement, a Korean will pay in Korean won that will be converted to euro through a European bank and sent to an Iranian bank for final payment to the Iranian receiving end.

The Korean government signed a memorandum of understanding (MOU) on executing projects worth $45.6 billion in May during President Park Geun-hye’s visit to Iran, and the euro-based payment system is expected to speed up the projects. More Korean firms are expected to advance to the Middle Eastern nation as the Iranian government has been inviting Korean companies to open outlets to oversee the projects, provide customer care service, and share technical expertise as well as venturing with other costly infrastructural projects such as shipbuilding, construction, and energy projects.

State-run financial institutions are also in full gear to support the Korean companies to make their business activities in Iran more convenient. Korea Trade Insurance Corp. raised credit to 4.5 billion euro ($5 billion) from 1.8 billion euro upon Iran’s request and the Export-Import Bank of Korea is to make additional financial support worth 13 billion euro that the total financial support through the state-run entities is expected to reach 22 billion euro.

The Iranian government requires Korean firms to ready financing plan on about 90 percent of infrastructural and plant projects, and the financial institutions have been backing up to enable smooth business transactions with Iran, said an official in the financial industry who asked to be unnamed.

The local shipbuilders already have signed MOUs on projects worth about 3 trillion won ($2.7 billion) and state-run utilities firms including Korea Gas Corp. and Korea Energy Power Corp. are also engaged in multi-billion dollar energy projects. Six Korean construction companies including Hyundai Engineering & Construction Co. have also been selected as the preferred bidder for an order for 2.3 trillion won worth hospital construction project last month.

By Cho Si-young and Ko Jae-man

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]