South korea Country Commercial Guide
Learn about the market conditions, opportunities, regulations, and business conditions in south korea, prepared by at U.S. Embassies worldwide by Commerce Department, State Department and other U.S. agencies’ professionals
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Trade Financing
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Methods of Payment

Korea has a strict financial system, and meeting the demands for financing international commercial transactions is often challenging. This is mainly due to bank regulations to maintain BIS (Bank for International Settlement Reserves) capital adequacy ratios above seven percent and strict loan requirements for SMEs and independent business owners, given the significant personal household debt to GDP ratio (102.2 percent, 2023 Q1).

Foreign start-ups with Korean partners often need to invest financial resources for the joint venture. In contrast, their Korean partners make in-kind investments for their equity share. Joint-venture companies and foreign firms often work with branches of foreign banks for local currency financing, but these branches control just a tiny portion of Korean Won.
Sources for Korean Won financing include domestic commercial banks, regional banks, and specialized banks, such as the Korea Development Bank (KDB), the National Agricultural Cooperative Federation (NACF), and the Industrial Bank of Korea (IBK).

Korea’s major international banks offer services for all international trade payment methods. Knowing how to collect payment on an overseas sales transaction is critical for SME business owners who aspire to expand their international business operations.  

Common overseas payment methods include:  

•    Sight and deferred payment Letters of Credit (L/C),
•    Documents against Acceptance (D/A) and Documents against Payment (D/P), and 
•    Open Account Transactions 

D/As and L/Cs are forms of extended credit in which the importer makes no payment for the goods until the agreed date in the L/C.
D/Ps are similar to D/As except that the importer cannot clear the goods from customs prior to payment.  In some cases, an importer can clear goods before the payment under a sight L/C. An L/C transaction generally follows standard international Uniform Customs and Practice (UCP) codes.  

CS Korea recommends that U.S. companies operate on a confirmed L/C credit basis with new and familiar customers. A confirmed L/C through a U.S. bank is recommended because it prevents unwanted changes to the original L/C and places responsibility for collection on the banks rather than the seller. After business relationships have strengthened with time, other payment procedures can be employed. 

For more extensive details on international payment methods, letters of credit and documentary collections, as well as for more information about the methods of payment or other trade finance options, please read the Trade Finance Guide. 

To reduce risks of nonpayment, U.S. companies may also contact credit rating agencies, which can provide fee-based corporate information to evaluate the financial credibility of Korean companies. Dun and Bradstreet Korea and the Korea Investors Service are known to provide fee-based credit rating services in Korea. CS Korea can provide valuable information through our fee-based International Company Profile Service, including a company’s credit standing.

The Korean Commercial Arbitration Board and private collection agencies can provide arbitration and collection services. KCAB’s mediation staff can counsel on the arbitration procedure to suit both Korean and foreign companies’ specific needs and assist in communicating and negotiating.

Whatever payment terms are agreed upon, make sure they are understood by all parties and that your client, representative or contact signs a mutually agreed document. Payment terms must be agreed to in advance. It is rarely wise to sell on an open account to a new customer.

Banking Systems

Korea’s financial system consists of banking and non-bank financial institutions. 

The Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) supervise and examine all banks, including specialized and government-owned banks, securities, and insurance companies. The FSC and the FSS play a key role in financial restructuring and strengthening the regulatory framework governing the entire financial sector. Bank of Korea is the country’s central bank which sets price stability in consultation with the government, implements monetary and credit policy in the country, and oversees the foreign exchange transactions of banks.

Financial Services and the U.S.-Korea Free Trade Agreement (KORUS FTA)

The KORUS FTA has provided financial services in the U.S. with unprecedented access to the Korean market from a somewhat restricted market. The Agreement locks in standards, regulations, and commitments that increase the transparency, predictability, and cost-efficiency of operating in the Korean financial service market.  However, restrictions on using foreign Cloud Computing systems for financial services still present regulatory obstacles limiting market access for foreign cloud service providers. The Korean Financial Services Commission (FCS) requires cloud service companies to meet local conditions on account of national security, which restricts the flexibility of foreign service suppliers to offer services on a cross-border basis.  The United States continues to engage the Korean government on FTA commitments in financial services. More information can be found at https://ustr.gov/uskoreaFTA/financial_services.  

Foreign Exchange Controls

Korea has liberalized foreign exchange controls in line with OECD standards. A foreign firm that invests under the terms of the Foreign Capital Promotion Act (FCPA) is guaranteed to remit proceeds accruing from the sale of stocks, the principal, interests, and service charges paid to a foreign country in accordance with the details of the report or permission of the foreign investment at the time of such remittance.

To withdraw capital, a stock valuation report issued by a recognized securities company or by Korea Appraisal Board must be presented. Foreign companies not investing under the FCPA must repatriate funds through authorized foreign exchange banks after obtaining government approval. Though Korea does not routinely limit the repatriation of funds, it reserves the right to do so in exceptional circumstances, such as in situations that may harm its international balance of payments, cause excessive fluctuations in interest or exchange rates, or threaten the stability of the domestic financial markets. The Korean government has had no instance of limiting repatriation for these reasons, even during and after the 1997-98 financial crisis. 
Please visit the Bank of Korea for more information.  

U.S. Banks and Local Correspondent Banks

List of American Banks in Korea
•    Bank of America (https://business.bofa.com/content/boaml/en_us/locations.html#asiaPacific) 
•    Bank of New York Mellon (https://www.bnymellon.com/kr/en.html) 
•    Citibank (https://www.citigroup.com/global/about-us/global-presence/korea): Citibank, N.A. – Following Citigroup’s 2021 exit strategy for Consumer Banking, its Korean office is also phasing out its retail banking business. There will be restrictions on personal account usage and consumer-facing financial products in the future.
•    Wells Fargo Bank
•    JP Morgan-Chase Bank
List of Major Korean Banks in Seoul
•    KEB Hana Bank (https://www.kebhana.com/easyone_index_en.html) 
•    Woori Bank (https://spot.wooribank.com/pot/Dream?withyou=en&LCL=EN) 
•    Kookmin Bank (https://omoney.kbstar.com/quics?page=oeng#loading) 
•    Shinhan Bank (https://www.shinhan.com/en/#300000000000) 
 

For additional information, visit the U.S. Department of State Investment Climate Statements.