South Korea's Woori Bank is providing more favourable letter of credit (L/C) terms in its 500 billion won (US$343 million) financial support package designed to help Korean importers and exporters overcome the country's foreign exchange crisis.

The move mirrors South Korea's Shinhan Bank's response to the weakening of the won and volatile economic conditions when it extended the maturity of L/Cs and provided additional funding for businesses paying for L/Cs (DC World News, 20 December 2024).

Under pressure

South Korea's banks are under pressure. The arrest of President Yoon Suk Yeol following his failed attempt to impose martial law last December has created a political vacuum, undermining consumer and business confidence.

Economically, this political uncertainty has conspired with other factors to weaken the South Korean won substantially, leading the Bank of Korea to maintain its benchmark interest rate at 3 per cent to address exchange rate concerns.

The South Korean currency is also under pressure from tensions in the region, particularly related to North Korea, a slowdown in global growth, and rising oil prices.

Discounted acquisition fees

In Woori's package, importers will be supported in managing financial demands arising from fluctuations in the value of the won through measures associated with L/Cs while the bank says it will also offer discounted acquisition fees.

These fees may involve the costs associated with issuing or processing an L/C, with the discounted fees reducing the financial burden on importers.

Affordable trade finance

Documentary collection charges may also be reduced if the support package includes reduced fees for handling trade documents during import/export transactions, such as invoices or bills of lading.

These discounted acquisition fees are a way for Woori Bank to provide cost relief for businesses engaging in international trade, making it more affordable for customers to access trade finance and other related services.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.