10.11.18 jpmorgan update south korea

8/6/2019 10.11.18 Jpmorgan Update South Korea

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Country ProleSouth Korea

TREASURY SERVICES


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2010 JPMorgan Chase & Co. All Rights Reserved. JPMorgan Chase Bank, N.A. Member FDIC. All services are subject to applicable laws and regulationsand service terms. Not all products and services are available in all geographic areas. Eligibility or particular products and services is subject to nal

determination by J.P. Morgan and or its afliates/subsidiaries. Produced by TS Global Marketing.

Table of Contents

Executive Summary ......................................................................4

Economic / Political Environment

Overview .....................................................................................4

Key indicators ...............................................................................5

Regulatory Environment and General Market Practice

Key summary ................................................................................6

Resident and non-resident status ........................................................6

Central bank reporting ....................................................................6

Exchange controls ..........................................................................6

Liquidity

Account types ...............................................................................7

Cash concentration / ZBA sweeping .....................................................7

Cross-border sweeping .....................................................................8

Notional pooling ............................................................................8

Lifting fees ..................................................................................8

Taxation

Withholding tax .............................................................................9

Value-added tax .......................................................................... 10

Corporate taxation ....................................................................... 10

Transfer pricing ........................................................................... 10

Thin capitalisation ........................................................................ 10

Capital gains tax .......................................................................... 10

Payroll taxes .............................................................................. 11

Securities transaction tax ............................................................... 11

Acquisition tax ............................................................................ 12

Registration tax ........................................................................... 12

Advance tax ruling availability ......................................................... 12

Payment Instruments

General overview and trends ........................................................... 12

Indicators of use of various cashless payment instruments ........................ 13

Electronic payment instruments ....................................................... 13

Cheque and paper instruments ......................................................... 15

How Companies Pay & Receive

Key summary .............................................................................. 15

How companies make payments ....................................................... 16


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How companies receive payments ..................................................... 16

Summary of payment methods ......................................................... 17

Clearing Systems (including interface with cross-border systems)

Overall structure(s)....................................................................... 17Electronic clearing systems ............................................................. 18

Paper-based systems ..................................................................... 20

Electronic Banking

Existing and future trends............................................................... 21

Usage by companies ...................................................................... 21

Market practice ........................................................................... 21

Internet banking .......................................................................... 21

Trade Finance

Overview of trade agreements with other countries ............................... 22General trade overview including any government policy ........................ 22

Imports and exports ..................................................................... 22

Main trading partners for imports and exports ..................................... 22

Main traded products / sectors share of total imports and exports ........... 22

Documentation requirements for imports and exports ............................. 23

Licence requirements for imports and exports ..................................... 23

Taxes, tariffs and other fees on imports and exports ............................. 23

Country export credit agency ......................................................... 23

Export credit programmes ............................................................. 24

List of prohibited imports / exports .................................................. 24

Glossary .................................................................................. 25

The material contained in this report is not intended to be advice

on any particular matter. No subscriber or other reader should act

on the basis o any matter contained in this report without considerin

appropriate proessional advice. J.P. Morgan and its contracted

inormation supplier expressly disclaim all and any liability to any

person, whether a purchaser o this report or not, in respect o

anything and o the consequences o anything done or omitted to be

done by any such person in reliance upon the contents o this report.

Updated

18 November 2010


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Executive Summary

South Korea is the fourth largest economy in Asia and has shifted from a primarily poor, agricultural economy at its founding in

1948 to the 15th largest economy globally, relying on services and technologically advanced industries for economic growth. As

one of the Asian Tiger economies, South Korea had achieved impressive levels of growth through government-directed, ve-year

economic plans. This changed with the East Asian Crisis of 1997, which pushed South Korea towards more decentralised, market-

oriented reforms. However, a high degree of government direction is still exercised. Liberalisation of foreign exchange controls

combined with gradual scal privatisation and reform helped South Korea to maintain its role as one of the worlds fastest

growing mature economies, though this growth has been affected by the recent global economic slowdown and its effect on

exports, which account for over half of South Koreas GDP.

From a cash management perspective, regulatory restrictions still prevent certain liquidity management schemes from

implementation, though this is changing with the continued liberalisation of exchange controls and foreign exchange transactions

There are some restrictions on non-resident accounts in domestic currency as well as reserve requirements for resident and non-

resident foreign currency accounts. Due to strict regulations, notional pooling is not permitted. Cash concentration is permitted

within a legal entity and zero balancing is a common practice. However, zero balancing or sweeping intercompany loans may be

subject to tax.

Payments are mainly effected by credit transfers, payment cards, and, to a lesser extent, direct debits. Paper instruments, such

as cheques and giros, have declined in favour of payments that can be made through one of South Koreas nine electronic retail

payment systems operated by the KFTC. In addition, the Bank of Korea operates a high-value RTGS system, BOK-Wire+, which

was upgraded in April 2009. BOK-Wire+ also provides nal settlement of net positions arising from the various retail payment

systems. South Korean companies can rely on well-developed electronic banking services, such as the Cash Management System

and their banks own proprietary e-banking platforms. Many local banks have invested heavily in browser-based cash and liquidit

management services. South Korea also has one of the most advanced mobile banking networks in the world.

Economic / Political Environment

OverviewSouth Korea is one of the richest Asian countries per capita with a population of just over 48.6 million. South Korea transformed

itself through a series of ve-year economic plans, which combined state direction and free enterprise, and is the fourth largest

economy in Asia after China, Japan and India. It is also the fourth largest exporter in Asia and one of the worlds trillion dollar

economies. It is a key member of the regions economic organisations, such as the Association of South-East Asian Nations (ASEAN).

After the East Asian Crisis of 1997-1998, which saw the bankruptcy of one of South Koreas largest conglomerates (chaebols)

Daewoo, former president, Kim Dae Jung, adopted reforms recommended by the International Monetary Fund (IMF) aimed at

greater transparency in accounting practices and corporate governance, putting pressure on chaebol structures, and nancial

market reform. The 1998 Foreign Exchange Transaction Act (FETA) liberalised exchange controls and foreign investment. The

government is working towards complete exchange control liberalisation by 2011 with the Foreign Exchange Act replacing the FETA.

Though South Koreas economy has been heavily affected by the global economic slowdown, it rebounded strongly in the second

half of 2009 as the slowdown in demand from its largest export markets (China, the United States and Japan) began to wane. GD

increased by 0.2% for 2009 as a whole and the economy registered strong annualised growth of 7.8%, 7.2% and 4.5% during the r

three quarters of 2010.

In order to boost domestic demand, South Koreas government launched a series of economic rescue packages, including a USD

11 billion stimulus package in November 2008 and a record supplementary budget in March 2009. Although the stimulus packages

have helped economic recovery in South Korea, the spending levels involved have left the country with large sums of debt.


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President Lee Myung-bak of the conservative Grand National Party won the December 2007 presidential election with 49% of the

vote, ending 10 years of a centre-left executive. In March 2008, the president, a long-time opponent of the Sunshine Policy of

engagement with North Korea, announced that further economic co-operation with North Korea would be subject to the latter

resolving its international standoff over its nuclear programme. The North Korean government has countered this change by

expelling South Korean ofcials from an inter-Korean industrial complex and through military provocations. North Korea conductean underground nuclear test on 25 May 2009, followed by the testing of short range missiles. North Korea has also stated that it

is no longer bound by the terms of the 1953 armistice that ended the Korean War. In May 2010 tensions between the North and

South were again heightened when an international report placed responsibility for the sinking of the Cheonan South Korean

warship on a North Korean submarine. The North has called the allegations fabrications, but the incident, which resulted in 46

South Korean deaths, caused outrage in South Korea. Both sides have swiftly broken off all trade and communications ties. South

Korea has referred the North to the UN Security Council and the North has responded by threatening military action.

Key indicators

2004 2005 2006 2007 2008

2009 2010

Q3 Q4 YEAR Q1 Q2

GDP @ yearend exchangerate

USD

billion799 855 977 1,042 815 - - 913 - -

GDP volumechange(year on year)

% + 4.7 + 4.0 + 5.2 + 5.0 + 2.4 + 1.0 + 6.0 + 0.2 + 8.1 + 7.2

GDP per capita USD 16,864 17,980 20,460 21,717 16,926 - - 18,889 - -

Consumerprices change

(year on year)

% + 3.5 + 2.8 + 2.2 + 2.5 + 4.7 + 2.0 + 2.4 + 2.8 + 2.7 + 2.6

Exchange rate KRWper USD (end periodmarket rate)

1,035.10 1,011.60 929.80 936.10 1,259.50 1,178.1 1,164.5 1,164.5 1,131.3 1,210.3

Source: IMF International Financial Statistics, October 201

Population (July 2010 est.) 48.64 million

Sectoral analysis % (2008 est.)

Agriculture 3.0%

Industry 39.4%

Services 57.6%


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Regulatory Environment and General Market Practice

Key summaryThere are some restrictions on non-resident accounts in domestic currency as well as reserve requirements for resident and non-resident foreign currency accounts. Due to strict regulations, notional pooling is not permitted and cash concentration solutions

are only permitted within a legal entity. Cross-border sweeping and notional pooling are not allowed. The Korean won is only

traded onshore. Central bank reporting is required.

Resident and non-resident statusA company is considered resident if its place of effective management is located in South Korea.

Central bank reportingAll payment records are required to be reported to the central bank on a monthly basis. Banks undertake reporting to the BOK onbehalf of their customers. All transactions between residents and non-residents should be completed through a foreign exchange

bank, which includes any operational domestic or foreign bank in South Korea.

Central bank reporting applies to inows and outows from residents accounts held outside South Korea, but there is no

requirement to report on non-residents dealings with residents accounts held out of the country.

Settlement methods, such as netting, must be reported to the BOK.

Exchange controlsThe currency of South Korea is the Korean won (KRW), the external value of which is subject to an free oating regime with

no predetermined path. The administrative authorities can intervene in the foreign exchange market to smooth out any large

intra-day volatility swings in the KRW rate. It is the responsibility of the Financial Services Commission (FSC) to generate foreign

exchange policies and the responsibility of the BOK to apply them.

South Korea has made signicant progress towards liberalising its foreign exchange controls since 1997, and continues to do so, bu

various restrictions remain. Any imports/exports of cash, by both residents and non residents, exceeding USD 10,000 or equivale

no longer require BOK approval, but must be reported to the customs ofce. Transfers of domestic and foreign currency abroad

exceeding USD 1 million or equivalent require BOK approval. Repatriation of proceeds from capital and invisible transactions

above the equivalent of USD 500,000 must be made within one and a half years to South Korea. Otherwise, proceeds must be hel

overseas for foreign transactions.

New rules limiting domestic and foreign banks foreign exchange derivative contracts were introduced in South Korea in July

2010. Domestic banks foreign exchange derivative contracts are now limited to a value of 50% of their equity capital the previous

month, whereas foreign banks are limited to a ceiling of 250% of the value of their equity capital the previous month.

Though foreign investment is allowed in the vast majority of industries, controls are in operation for agricultural products

including rice, public sector utilities involved in privatisation, nuclear energy, and investment in nancial institutions, transport

and communication. Corporations can now freely invest overseas with no limits provided the investment is declared to and

accepted by the designated foreign exchange bank. Overseas investment in nancial institutions or in any overseas nancial or

insurance institution must be declared to and be accepted by the Ministry of Strategy and Finance (MOSF). An insurance company

may have no more than 30% of the value of its total assets denominated in foreign currency.

The MOSF must be notied of nancial and commercial credits (other than trade credits) to residents from non-residents

exceeding USD 30 million. Notication can be made through a companys foreign exchange bank for amounts up to USD 30 million


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A foreign exchange bank does not need to give prior notication for domestic currency loans to non-residents of up to KRW 30

billion. From mid-July 2010 the MOSF has introduced new rules on foreign currency nancing for resident companies. These rules

restrict resident companies, with the exception of some small and medium-sized manufacturers, to obtaining foreign currency

loans for overseas use only. Small and medium-sized manufacturers can also obtain foreign currency nancing for the purchase

of domestic facilities, but borrowing must not exceed levels set in 2010. The BOK should be notied of personal loans betweenresidents and non-residents.

Liquidity

Account typesResidents can open and maintain foreign currency accounts domestically and abroad. Domestic currency is not convertible into

foreign currency.

Non-residents are also allowed to open and maintain bank accounts in South Korea, denominated in either domestic or foreign

currency.

Non-resident domestic currency accounts, known as free won accounts, allow the conversion of domestic currency into foreign

currency and the transfer of the proceeds abroad.

General market practiceDomestic currency current accounts are not paid interest.

Short-term and demand deposit accounts, denominated in both domestic and foreign currency, are available to both

residents and non-residents.

Interest can be paid on foreign currency term and savings accounts at market rates.

Cash concentration / ZBA sweepingCash concentration is a liquidity management technique whereby account balances are physically transferred to/from a single

account (known as a master, header or concentration account) for liquidity management purposes. Cash concentration can take

these forms:

Zero balancing (ZBA), sometimes referred to as sweeping, is a cash concentration technique whereby the total of all account

balances is physically transferred into a nominated account.

Target balancing, also known as sweeping, is a cash concentration technique similar to ZBA, whereby all account balances are

physically transferred into a nominated account leaving a predetermined amount in the sub-accounts.

Threshold balancing is a cash concentration technique similar to ZBA, whereby the balances of the sub-accounts are physically

transferred in their totality into a nominated account each time the sub-account balances reach a predetermined threshold.

General market practiceFor residents:

Strict regulations long prevented sophisticated liquidity management structures among South Korean companies. Though th

is now changing, certain regulations still prevent cash concentration and pooling between different entities.

Most companies use cash concentration techniques to manage their liquidity. Cash concentration usually takes the form of

zero balancing or sweeping. Standard market practice entails companies holding multiple collection accounts at different

local banks, allowing customers to make a payment through an internal transfer. The Cash Management System operated by


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the Korea Financial Telecommunications and Clearings Institute (KFTC) can facilitate the concentration of these balances

into a nominated account.

Zero balancing or sweeping intercompany loans are subject to tax.

For non-residents:There are no restrictions on non-residents participating in cash concentration techniques within a single legal entity. The

Korean won may only be traded onshore, preventing involvement in certain regional liquidity management schemes.

Cross-border sweepingA cross-border sweep is a liquidity management technique used to concentrate funds held in accounts in different jurisdictions

into one liquidity centre*. A system for accounting, reporting and payment in accordance with the respective national accounting

standards of the countries involved in the sweeping arrangement has to be put in place.

* Care: A cross-border sweep can create an intercompany loan, which for certain countries will trigger corporate

withholding tax.

General market practiceFor residents:

Resident companies are not permitted to participate in cross-border sweep structures via an account based in South Korea.

International pooling is beginning to be developed by South Korean conglomerates through the help of international banks.

For non-residents:

Non-resident companies are not permitted to participate in cross-border sweep structures via an account based in South

Korea.

Notional poolingNotional pooling is a liquidity management technique which does not involve the physical movement or any co-mingling of funds

held in different bank accounts. All bank account balances within the structure are offset against one another. The bank applies

interest on the structures net balance, rather than on the individual bank account balances.

Some countries restrict notional pooling to bank accounts held in the name of the same legal entity. Others permit bank account

held in the name of different group entities to participate in the same notional cash pool.

General market practice Single entityFor residents and non-residents:

Notional pooling is not permitted in South Korea.

General market practice Multiple entitiesFor residents and non-residents:

Notional pooling is not permitted in South Korea.

Lifting feesA lifting fee is a charge associated with the resident/non-resident movement of funds calculated as a percentage of the

transaction value.

General market practiceFunds transfers between resident and non-resident accounts are subject to lifting charges either as at fees for a range of

transfer values, or as a percentage of the total transaction value.


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Taxation

A company which has its headquarters, main ofce, or a place of effective management in South Korea is considered to be a

domestic company. A domestic company is taxable on its worldwide income. A foreign company with a permanent establishment

in Korea is liable to le its corporate tax return disclosing the income attributable to the permanent establishment. A foreign

company without a permanent establishment in Korea is taxable on the Korean source income for Korean corporate income tax

purposes.

A business year should be specied in the companys Articles of Incorporation or in the by-laws and should not exceed a year.

Most companies use a calendar year. Corporate tax returns and tax payments are due by the end of the third month after the yea

end and extension is only available for a foreign company (including branch) upon the approval of the tax authority. Companies

le interim tax returns for the rst six month period or pay half of the prior years tax liability within two months from the end o

the second quarter.

The South Korean government has entered into tax treaties with 76 countries (as of 31 December 2009). When domestic tax law

conicts with a tax treaty, the tax treaty overrides domestic law.

Withholding tax

Payments to: Interest Dividends RoyaltiesBusinessprots

Personalservicesincome

Other income

Resident companies 15.4-22% None None

Non-resident companies with treaty 015% 515% 015%Can be

exempt*

Can be

exempt

Can be

exempt

Non-resident companies without

treaty

15.4-22% 22% 22% 2.2% 22% 22%

*Business prots derived by a resident of a country with which Korea has a treaty can be exempt from Korean corporate income tax when the treaty provides for suc

exemption.Personal services income derived by an employee of a resident company of a country with which Korea has a treaty can be exempt from Korean corporate income ta

when the treaty provides for such exemption.

Other income derived by a resident of a country with which Korea has a treaty can be exempt from Korean corporate income tax when the treaty provides such

exemption.

The sale of listed shares by a foreign shareholder is exempt from capital gains tax when the following requirements are satised:

listed shares are transferred through the Korea Stock Exchange or KOSDAQ;

the foreign company has no permanent establishment in Korea; and

the foreign company and any related parties own less than 25% of the share capital of the Korean company during the

year in which the transfer occurs, and did so during the prior ve-year period.

The taxation of a gain from trading in derivative products or sophisticated nancial products is still in the development stage in

South Korea and there are currently no denite rules. Certain gains are treated as interest and other gains are treated as other

income. Withholding tax rates would differ depending upon the character of the income derived.

Income from transactions in nancial investment services and capital markets derived by a foreign company with no permanent

establishment in South Korea are not treated as Korean-sourced income subject to Korean withholding tax.


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Value-added taxVAT is levied on all taxable goods and services and on all taxable goods imported into South Korea. The standard rate is 10%,

but a zero-rated VAT is available on certain supplies or services, including the export of goods, services provided outside Korea,

international navigation services involving ships and aircraft, etc. Furthermore, public transportation services, certain food

products, publications, medical services, and services provided by nancial institutions such as bank, insurance, securities, etc.

listed in the VAT law are exempt from VAT.

Corporate taxationResident companies are taxed on their worldwide income, after the deduction of allowable expenses, including capital gains.

Non-resident companies are taxed on Korean-sourced income only. Corporate income tax rates were revised in December 2009 a

follows:

Tax Base Tax Rate

2010 2011 2012

KRW 200,000,000 or less 11% 11%

More than KRW 200,000,000 24.2% 22%

Transfer pricingCompanies are required to conduct their business on arms length principles. Where arms length pricing is not initially applied to

transactions with related parties, appropriate adjustments to prots can be made by the tax ofce upon an audit. In determining

what constitutes an arms length price, the International Tax Coordination Law is applied. Companies should maintain sufcient

documentation to support the prices used and any adjustments made. Failure to do so can lead to penalties being charged.

Advance pricing agreements can be made with the National Tax Service.

Thin capitalisationIf a foreign invested company borrows from a foreign controlling shareholder (FCS), or an FCS or head ofce guarantees

borrowings from third parties, and such borrowing exceeds 300% of its net equity or paid-in capital, whichever is greater, then

the interest expense on the debt exceeding 300% (600% for nancial institutions) of the FCSs share of the borrowers net equity

or paid-in capital is not a deductible expense for Korean corporate income tax purposes. Furthermore, any disallowed interest is

treated as a dividend to the FCS and is subject to withholding tax. An FCS is a head ofce or a foreign entity owning, directly or

indirectly, 50% or more of the shares of a Korean company or a foreign entity that substantially controls the Korean company.

When a company borrows funds that are then used to lend to related parties, a portion of the interest expense incurred by thecompany, equivalent to the ratio of the loans made to the related party over the companys total borrowings, would not be

deductible for income tax purposes. This is because the loan to a related party would be considered a non-business asset under

the corporate income tax law when the lender is not engaged in a nancing business.

Capital gains taxSouth Korean domestic tax law imposes a capital gains tax equal to the lesser of 22% of the capital gain or 11% of the sales

proceeds when a non-resident derives capital gains from the sale of shares in a South Korean company provided that such a


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company is not a real-estate heavy company and unless a reduced rate of withholding tax is applicable under a double taxation

treaty. Domestic companies report capital gains, together with other prots earned by the company, on their corporate tax retur

and there is no preferential rate for capital gains. Foreign companies that derive capital gains from the sale of real estate or real

estate heavy companies are required to le a tax return and are subject to tax at the regular corporate tax rate.

Payroll taxesEmployers are required to withhold the following taxes, pension contributions and insurance contributions from their employees

payroll on a monthly basis and submit them to appropriate government ofces by the tenth day of the month following the mont

in which salaries are paid. Industrial injury compensation insurance and unemployment insurance are paid annually and due by 3

March.

Combined tax rate (including resident surtax)

Annual taxable income 2010 2011 2012

Less than KRW 12,000,000 6.6% 6.6%

KRW 12,000,00036,000,000 16.5% 16.5%

KRW 46,000,00088,000,000 26.4% 26.4%

More than KRW 88,000,000 38.5% 36.3%

Employer Employee Total Remark

National Pension 4.5% 4.5% 9.0%

Monthly cap: KRW 162,000 each

(increased to KRW 165,600 each as

of 1 July 2010)

National Health Insurance 2.665% 2.665% 5.33% Monthly cap: KRW 1,753,300 each

Long-term Care Insurance 0.175% 0.175% 0.35%Calculated as 6.55% of the national

health insurance premium

Industrial Injury CompensationInsurance

0.7436.04% 0.7436.04%Varies depending on

the types of industries

UnemploymentInsurance

0.71.3% 0.45% 1.151.75% No cap

DisabilityBusinesses with more than 50 employees are required to hire people with disabilities, who should make

up 2% of the total workforce. Failure to comply results in a penalty of KRW 510,000 per person.

Securities transaction taxSecurities transaction tax is imposed on the seller at a rate of 0.5% and 0.150.3% for listed shares of the transfer price upon the

sale of securities.


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Acquisition taxWhen a taxpayer acquires certain assets, such as property, a vehicle or luxury assets (including golf club membership) set out in

the Local Tax Law, a 2.2% acquisition tax is imposed on the purchasing price of the assets acquired.

When a shareholder acquires over 50% of the shares in a domestic company, the shareholder is deemed to have acquired the

underlying assets (mentioned above) of that company; therefore the acquiring shareholder is subject to a 2.2% (including local

surtax) deemed acquisition tax on the book value of such assets.

Registration taxA company is subject to a 0.48% capital registration tax on the amount of capital contributed. The tax rate triples when the

company is located in the Seoul metropolitan area.

An asset registration tax applies to certain assets that need to be registered with the court. The registration of real estate

is subject to a tax of 2.4% of the transaction price and the registration of vehicles is subject to a tax of 25%. The real estate

registration tax rate triples when the registration is executed in the Seoul metropolitan area.

Advance tax ruling availabilityA tax payer can submit a written ruling request to the National Tax Service (NTS) or the Ministry of Strategy and Finance (MOSF)

to resolve or clarify certain tax issues before entering into transactions. Obtaining a ruling can take a few weeks to a few month

Such rulings are public information. Third parties can refer to rulings but such rulings are only binding upon the party who

requested it.

Supplied by Deloitte Touche Tohmatsu, 7 May 201

For more information please visit www.deloitte.com

Payment Instruments

General overview and trendsThe use of paper-based payment and collection instruments (such as cheques and paper-based giros) in South Korea has steadily

declined in recent years in favour of electronic credit transfers, direct debits and payment cards. In particular credit cards have

increased in popularity as a result of government deregulation and tax deductions providing incentives for their use. As a result,

electronic payment cards and credit transfers are now the most common cashless payment method in terms of volume. However

cheques are still an important payment medium in terms of value. The rise in electronic payments corresponds to the rise in

electronic banking in South Korea, which has one of the most advanced mobile and internet banking networks in the world.
http://www.deloitte.com/http://www.deloitte.com/


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Indicators of use of various cashless payment instruments

Transactions (million) % changeTrafc

(KRW billion)% change

2008 2009 2009 / 2008 2008 2009 2009 / 2008

Cheques and bills* 747.5 648.2 -13.3 5,153,210.3 5,420,612.7 5.2

Debit cards 1.3 1.0 - 23.1 57.4 44.8 -21.9

Credit cards 4,147.4 4,880.1 17.7 456,420.6 466,358.1 2.2

Credit transfers (paper-based andelectronic)

2,321.6 2,430.8 4.7 51,332,536.2 55,382,648.3 7.9

Direct debits 715.3 682.9 -4.5 63,026.9 63,681.0 1.0

Card-based e-money 109.1 105.3 -3.5 93.2 90.9 -2.5

Total 8,042.2 8,748.3 8.8 57,005,344.6 61,333,535.8 7.6

* Only those cheques and bills cleared through the cheque clearing system and not presented at issuance window.

Source: Bank of Korea ECOS Economic Statistics System, May 2010and KFTC statistic

Electronic payment instruments

DomesticCredit transfers (electronic payments)The electronic credit transfer is one of the most popular mediums of non-cash payments in South Korea. Though credit transfers

as a whole accounted for only 27.8% of the total volume of non-cash payments processed in 2009, they represented 90.3% of the

total value. Of this, four out of every ve credit transfers are made electronically, accounting for over 99% of the value of all

credit transfers.

High-value / urgentClearing detailsHigh-value transfers requiring immediate execution are processed via the RTGS system, BOK-Wire+, and executed

individually in real time on a same-day basis.

Low-value / non-urgentClearing detailsRetail credit transfers/giros are cleared through the various retail payment systems operated by the Korea Financial

Telecommunications and Clearings Institute (KFTC).

Regularly scheduled electronic credit transfers can be made via the Giro System, using a customers bank account. Irregula

credit transfers are executed and cleared via one of the Financial Information Network Systems (FINS) or the Internet Giro

Service.


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Delivery of electronic credit transfers is made across banks interconnected computers with the KFTC and sent to the BOK-

Wire+ for multilateral net settlement at 11:30 on the following business day.

Payments can be initiated via rm banking, CD/ATM system, the internet, mobiles, PCs and telebanking, the Cash

Management Service (CMS) system and BANKLINE, a service for local banks.

Direct debitsDirect debits are widely used in South Korea for regular payments. There are two types of direct debit in South Korea.

The Bank Giro System direct debit This is widely used to effect regular low-value payments such as utility bills and insurance.

The debtor transfers specied funds to a creditor through periodic transactions according to a pre-authorised agreement betwee

the debtor, creditor and nancial institution. The Giro-using institutions send the billing information to the KFTC.

The CMS debit transfer This is mainly used to collect high-value payments for companies, such as credit card charges and tuitio

which are transferred from multiple payor accounts to a collection account.

Clearing detailsDirect debits are cleared through the Electronic Bank Giro System, operated by the KFTC, which are then settled on a net-

basis through BOK-Wire+. Clearing for public utility charges takes approximately three days, while general giro direct debits

take around four days.

Debit transfers are cleared through the CMS.

Payment cardsDebit cards are not often used in South Korea as they can only be used between 08:00 and 23:30 and are not accepted by many

merchants. Credit cards, however, are a popular form of payment instrument, especially for retail payments and their usage

continues to rise. In 2009 the average daily spend by individuals using credit cards increased by 17.7% in terms of volume and 2.2

in terms of value, on the previous year.

Clearing details

There is no dedicated interbank settlement system for credit cards in South Korea and each domestic credit card company,along with Visa and MasterCard, can choose their own method of settlement for transactions.

EDTPOS clears all debit card transactions.

Electronic moneyElectronic money remains a little used payment instrument, accounting for 105.3 million transactions in 2009 at a value of

KRW 90.9 billion. Electronic money, in the form of K-Cash, VisaCash, and Mybi, is mainly used on public transportation or at

universities. Its use remains low, due to competition from pre-paid transportation cards and post-payment cards, which double a

credit cards. Approximately 11.2 million e-money cards were in circulation at the end of 2009.

Clearing detailsK-Cash is available 24 hours a day and transactions are cleared via the K-Cash service operated by the KFTC. Net settlemen

then takes place through BOK-Wire+.

Cross-border

Clearing detailsCross-border payments are effected through BOK-Wire+, which is connected to the CLS System via SWIFT. Most large banks

have direct access to SWIFT.

Payments can also be cleared via the banks own correspondent banking network. Several banks can use their corresponden

banks networks to access TARGET2, EURO1, and for retail payments, STEP1 and STEP2 in Europe.


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Cheque and paper instruments

ChequesCheques are widely used in South Korea for both consumer and business transactions. However, their usage has been affected by

the rise in popularity of electronic funds transfers and payment cards. In 2009 the daily usage of cheques and bills fell by 17.3%in terms of volume, on the previous year. However, the average daily spend using cheques and bills increased by 1.7%. This rise

reects the fact that in South Korea cheques are increasingly used for high-value payments.

The types of cheques and bills available include cashiers cheques, current account cheques and promissory notes. Businesses ca

make high-value payments with current account cheques or promissory notes, which are post-dated. However, the banking industry

has tried to discourage this practice due to the unfair advantage it gives to larger companies in negotiating deferred payment terms

with smaller suppliers. It has developed alternative payment methods such as corporate purchase cards.

Clearing detailsAll cheques are cleared via the Cheque Clearing System, comprising 50 clearing houses all operated by the KFTC.

The KFTC applies manual clearing to household cheques, promissory notes and current account cheques.

Cashiers chequesAlso known as bearer-form bank drafts, cashiers cheques can be used in place of regular cash for payments such as bank deposit

and loan instalments. They can be printed without a preset value or with a preset value, the most common of which is the KRW

100,000 denomination. Cashiers cheques can be dispensed at any ATM.

Clearing detailsCleared via the Cheque Clearing System.

The KFTC applies cheque truncation clearing to cashiers cheques, whereby banks send the payment information

electronically to the clearing house, without the physical movement of the cheque.

Paper-based credit transfers

The usage of paper-based credit transfers, or giros, has steadily declined in favour of electronic credit transfers and internet giros.The volume of paper-based credit transfers fell 5.5% but rose 0.8% by value from 2008 to 2009. Paper-based giros accounted for 30.3

of the volume of transactions processed through the Bank Giro System in 2009 and 41.6% of the value.

Clearing detailsThese are cleared via the Bank Giro System.

How Companies Pay & Receive

Key summaryCredit transfers and to a lesser extent direct debits are the most popular forms of payment used by South Korean companies.Cheques, particularly post-dated cheques, are still widely used to pay suppliers, though the practice is discouraged by the bankin

industry. The issuance of corporate credit cards continues to increase, reaching 4.98 million at the end of the rst quarter of

2010.


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How companies make payments

Vendors / suppliers

General market practice

Credit transfers are most commonly used to issue a large number of payments or invoices to multiple vendors and suppliersPre-authorised direct debits are the most commonly used instrument for regular payments such as insurance premiums

and utility payments. Promissory notes are also used to pay suppliers. Current account (corporate) cheques can be used for

public utility payments.

Tax / social security

General market practiceCurrent account cheques are commonly used for the payment of taxes by businesses. Credit transfers/giros can also be used

to pay tax and social security. Payment can also be effected through the Internet Giro System.

Payroll

General market practiceSalary, pensions and dividends payments are made via direct credit transfer (direct deposit).

Treasury settlements

General market practiceTreasury settlements are usually paid for via credit transfers or internet giros.

How companies receive payments

From consumers / small companies

General market practiceFor retail services, cash is still widely used among consumers and credit cards are a popular choice for small and medium-

value transactions. Cashiers cheques are widely used by the general public in place of cash and can be used to make utility

and loan payments.

Direct debits and credit transfers can also be used to collect payment from customers and small companies.

From other companies

General market practiceThe use of credit transfers and direct debits is common.

Post-dated promissory notes are commonly used as provisions of credit between businesses and corporate payment cards ar

on the increase.

The growing use of electronic payment methods has made it unnecessary to develop a lockbox network, though lockbox

services are available from some banks.


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Summary of payment methods

Physical

presence

Remote

payment

Regular

payment

One-off

payment

UsageTransactions

in 2009

(million)

% of totalnumber of

transactionsConsumer Companies

Cheque and bill P P P P M M 648.2 7.4

Debit/Credit card P N P P I I 4,881.1 55.8

Credit transfer P P P P I I 2,430.8 27.8

Direct debit P P P P M I 682.9 7.8

Card-based e-money P P P P S S 105.3 1.2

Total 8,748.3

I: important usage

M: moderate usage

S: seldom used

N: at the moment essentially used through non-secure communication of the card number

PInstrument available.

Source: Bank of Korea ECOS Economic Statistics System, May 201

Clearing Systems (including interface with cross-border systems)

Overall structure(s)The South Korean settlement system consists of a central bank-operated bilateral, multilateral and real-time gross settlement

system, BOK-Wire+, and nine retail net settlement systems used for the clearing of non-urgent/low-value payments.

The retail payment systems are owned and operated by the Korea Financial Telecommunications and Clearings Institute (KFTC),

an organisation owned by participating member banks. The KFTC divides its operations into the Cheque Clearing System, the Ban

Giro System, the Financial Information Networks Systems (FINS) and Electronic Money. In addition, the KFTC also manages a B2B

and a B2C e-commerce payment service, which support e-commerce transactions and fund transfers.

FINS interconnects the computers of all banks in South Korea through its relay computers to process various electronic payments

It is divided into the following systems:

CDNET (Interbank Cash Dispenser/Automated Teller Machine) System

IFTNET (Interbank Funds Transfer Network) System

EFTPOS (Electronic Funds Transfer at the Point of Sale) System

CMS (Cash Management Service) System

BANKLINE (Local Banks Shared) System

HOFINET (Interbank/Firm Banking) System, or the Electronic Banking System.


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High-value payments may be effected through BOK-Wire+, though in theory any payment can be effected through BOK-Wire+.

Low-value payments are generally processed through one of the nine retail net settlement systems, with nal settlement of net

obligations occurring through BOK-Wire+.

Electronic clearing systems

High-value / urgentBOK-Wire+ is South Koreas RTGS system for high-value interbank payments for domestic and foreign funds transfers, as well

as payments relating to the government and treasury. In April 2009, the system was upgraded, becoming a hybrid system, with

bilateral and multilateral settlement processes. The new system enables straight through processing of payments with direct

server-to-server connections between the BOK and its participants. BOK-Wire+ provides net settlement for all other clearing

systems.

BOK-Wire+ has been in operation since 1994 and is owned and operated by the central bank, the Bank of Korea (BOK). Any

nancial institution with an account at the BOK may participate in BOK-Wire+, subject to approval by the BOK. BOK-Wire+ has 12

participants, of which 53 are banks.

High-value/urgent payments and third-party funds transfers are settled in real time with immediate nality. Third-parties can

make payments of at least KRW 1 billion per transaction through a participating institution. There are no minimum or maximum

thresholds for all other payments.

The systems operating hours are between 09:00 and 17:30 local time, Monday to Friday. Interbank payments are made on a rst-

in-rst-out basis, whilst net settlement arising from the electronic retail payment systems takes place at 11:30 each day. Final ne

settlement of paper-based cheque clearing occurs at 14:30.

The system is connected to the DVP and PVP Systems and uses internationally established SWIFT standards of communication.

During 2009 BOK-Wire+ processed 2,540.5 million transactions at a total value of KRW 45976039.8 billion, an increase of 8.3% in

volume and 6.8% in value on 2008.

Low-value / non-urgentBank Giro System has been operating since 1977 and is used by companies and customers to make regularly scheduled non-urgent payments between bank deposit accounts. Eighteen Korean banks, one foreign bank and four specialist institutions

participate in the Bank Giro System.

The system is divided between processing paper-based giros and electronic giros. Electronic giros consist of credit transfers

such as standing orders and direct deposits, or direct debits. These are set up by prior arrangement between the payor, payee

and the relevant nancial institution. The KFTC is provided with the billing information from the giro and clears the transaction

accordingly. Net obligations are then settled through BOK-Wire+ on the following working day at 11:30. The KFTC also operates

an Internet Giro Service, which allows customers to effect a giro payment without visiting a bank branch. The system accepts

giro payments from 09:30 to 19:00 on weekdays, while the Internet Giro Service has extended hours until 22:00. Giro transfers

normally clear in two to three days, while cross-border transfers can take up to three days.

In 2009 electronic giros accounted for 69.7% of the volume and 58.4% of the value processed through the Giro System. The system

processed 1,072.7 million electronic giros at a total value of KRW 157531.5 billion in 2009, a decrease of 3.3% in volume and an

increase of 2.4% in value from 2008.

CDNET All South Korean domestic banks, the Post Ofce and three specialist co-operative institutions participate in CDNET,which began operating in 1988.

The system processes cash withdrawals, cash advances on credit cards, giro and funds transfers, and KRW 100,000 cashiers

cheque withdrawals effected through CD/ATM terminals. Funds transfers are limited to KRW 10 million per transaction. The


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network is in operation daily from 07:00 to 23:30 (09:00-17:00 Monday-Friday at indoor CD/ATMs) and is managed by NICE

e-Banking Services, which sends transactions information daily to the KFTC for clearing. Net positions arising from the system

are then settled on the following working day through the BOK-Wire+ at 11:30. In 2009 CDNET handled 506.6 million transactions

totalling KRW 242,531.2 billion, an increase of 1.7% in volume and a decrease of 0.4% in value on 2008.

IFTNET Eighteen South Korean banks, seven foreign banks and four specialist institutions participate in IFTNET, which began

operating in 1989.

The system allows customers of participant institutions to immediately remit cash, cashiers cheques, and collected money from

one bank branch to another regardless of location or bank by visiting any bank branch. Cash remittances are limited to KRW 100

million per transaction.

The network is in operation during banking hours from 09:30 to 16:30 Monday to Friday. A customers account is automatically

debited or credited upon payment order and net positions arising from the system are then settled on the following working day

through the BOK-Wire+ at 11:30. The use of IFTNET had been in decline due to the rise in various payment methods that do not

require visiting a bank branch, but volume and value levels have stabilised. In 2009 IFTNET processed 123.7 million transactions

totalling KRW 803,909 billion, a decrease of 8.1% in volume and 1.1% in value on 2008.

EFTPOS processes purchases made with bank-issued debit at the point of sale. There are 17 participating nancial institutions inthe system, which began operating in 1996.

Transactions through FETPOS are subject to a minimum purchase of KRW 1,000. The network is in operation daily from 08:00 to

23:30 for debit card transactions and continuously for credit card transactions. Net positions arising from the system are then

settled on the following working day through the BOK-Wire+ at 11:30.

The KFTC also operates a VAN service for credit card purchases, which is available 24 hours a day. In 2009 it processed 1.0 millio

transactions at a value of KRW 44.8 billion, a decrease of 23% in volume and 22.1 value from 2008.

CMS Eighteen South Korean domestic banks, one foreign bank and four specialist institutions participate in CMS, which began

operating in 1996.

The system is essentially a service which provides participating companies with the facility to manage bank-related funds when

doing business with several different banks. Companies can conduct non-urgent/low-value funds transfers and send transaction

information without having to go to the bank. The KFTCs intermediary system interconnects a companys computers with

participating banks. The system has a debit transfer and credit transfer service network. Net settlement of interbank funds for

deposit transfers takes place at 11:30 on the day of the transaction if made prior to that time, while net settlement of interbank

funds for debit transfers takes place the following business day at 11:30. In 2009 the CMS processed 753.8 million transactions

totalling KRW 102,108.2 billion, a decrease from 2008 of 4.7% in terms of volume and 7.1% in terms of value.

BANKLINE South Koreas six local commercial banks participate in BANKLINE, which began operating in 1997.The participating banks are connected with the KFTC system, enabling local bank customers to conduct account business at any

participating bank using a BANKLINE account. The system is essentially designed to provide local banks with a nationwide branch

network. The network is in operation during banking hours from 09:30 to 16:30. Net positions arising from the system are then

settled on the following working day through the BOK-Wire+ at 11:30. In 2009 BANKLINE processed 139,100 transactions totalling

KRW 1,143.2 billion, a decrease of 17.1% in terms of both volume and value.

HOFINET Eighteen South Korean banks, two foreign banks and four specialist institutions participate in HOFINET, which is theelectronic banking system operated by the KFTC.

The system processes banking transactions effected through communication devices such as personal computers, phones, mobile

phones, PDA and TV, 24 hours a day, seven days a week. HOFINET began operating in April 2001, after adding intermediary

electronic banking functions such as internet, phone, and mobile banking services to the existing ARS (Automated Response

Service). Transfers are limited to KRW 1 billion per transaction.


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Between 00:00 and 7:00, participating banks may choose to cut off access to HOFINET. Net positions arising from the system are

then settled on the following working day through the BOK-Wire+ at 11:30. In 2008 HOFINET processed 1.4 billion transactions

totalling KRW 7.1 trillion.

Other local transfer systemsThe KFTC also operates K-Cash, an e-money system, which processes transactions arising from the K-Cash card, which was

launched in 2000. However, it is mainly used on public transport.

The B2C E-commerce Payment System processes e-commerce funds transfers in real time for consumers and retailers and began

operating in 2000. The B2B E-commerce Payment System was launched in 2002 to assist businesses in the exchange of contract

information and also to serve as a payment channel for the Online Registered Bill (ORB), which encompasses both cheque and

credit functions.

Paper-based systemsCheque Clearing System All cheques, bills and payment certicates are cleared via the Cheque Clearing System, a network of 5clearing houses operated by the KFTC.

Cheque clearing can be divided into the Cheque Truncation Service (CTS) and manual clearing. The KFTC applies manual

clearing to household cheques, promissory notes and current account cheques, while cashiers cheques are truncated and sent

electronically to the designated clearing house. The CTS was launched in 2000 and the KFTC is in the process of extending the

CTS to household cheques, promissory notes and current account cheques. Since October 2009, current account cheques and

promissory notes exchanged through the Seoul Clearing house have been subject to CTS, and from December 2009, this was

extended to current account cheques and promissory notes exchanged through clearing houses in cities neighbouring Seoul. The

BOK aims for all promissory notes and current account cheques to be subject to CTS by the end of 2010.

Cheques are deposited at nancial institutions during banking hours. They are then delivered, either manually or electronically t

a regional clearing house for overnight clearing, until one hour before the start of the following business day (08:30). Net positio

are then transmitted to the BOK via the internet. If a cheque has been cleared manually, nal settlement take place through the

BOK-Wire+ at 14:30. Final settlement of net positions arising from cheques sent via the CTS occurs at 11:30.

All bills or cheques exchanged at a clearing house can be cashed the following day at 14:20 or later. If there is a regional

difference between the cheque issuer and the designated clearing house, then settlement can take up to ve days. Inter-regiona

clearing takes place in Seoul, Busan, Daegu, Gwangju, Gangneung Daejeon and Mopko. In 2009 the system processed 640.9 millio

transactions at a total value of KRW 5,399,706.3 billion, a decrease of 13.4% from 2008. The steady decrease in cheque usage is

attributable to the rise of other forms of electronic cashless payments. However, the value of cheque payments increased by 5.9

during 2009 on the previous year as cheques were used for higher value purchases.

Bank Giro System The Bank Giro System is divided between paper-based giro and electronic giro processing. For paper giros,giro-using institutions invoice their customers by issuing giro forms containing printed information on the payments to be made.

Customers then make a payment by taking the giro form to a bank for processing. Each giro contains a unique seven-digit number

which signies the billing companys name, bank code, and the account number of the beneciary. The KFTC is provided with the

billing information from the giro and clears the transaction accordingly. Net obligations are then settled throughBOK-Wire+ on the following working day at 11:30. Giros can be paid or collected at any bank branch or participating CD/ATM termina

In 2009 paper-based giros accounted for 30.3% of the volume and 41.6% of the value processed through the Giro System. The

system processed 325.3 million paper giros at a total value of KRW 65579.6 billion in 2009, a decrease of 15.5% in volume and

increase of 0.8% in value from 2008.


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Electronic Banking

Existing and future trendsElectronic banking is common practice in South Korea with most banks offering electronic banking services. However, there iscurrently no national bank-independent standard. In addition, most banks offer some form of internet banking and mobile phone

banking has grown rapidly.

Usage by companiesUsage of electronic banking has spread rapidly among South Korean businesses, along with signicant growth in the internet.

South Korea claims to be the most wired country on earth with one of the highest rates of broadband and mobile penetration.

Most banks offer their own proprietary e-banking systems. Many local banks have also invested extensively in the development

of online cash management services to meet the demands of customers. Internet banking transfers made by businesses in South

Korea are limited to individual transfers of no more than KRW 1 billion. A limit of KRW 5 billion for online transfers can be made

by a business in one day.

At the end the third quarter of 2010, there were around 33.4 thousand million companies subscribing to internet banking services

in South Korea. This is an increase of 11.7% on the number of corporate internet banking subscribers at the same point in 2009.

Market practiceThrough their proprietary systems, most major banks in South Korea offer services that include transaction initiation, balance

enquiry and loan services. Cash management services can also include e-procurement, e-invoicing and accounts receivable loans

To participate in electronic banking, customers must sign an agreement with their bank.

Internet bankingSouth Korea has one of the worlds highest internet penetration rates; 81.1% of the population currently accesses the internet. Asa result, internet banking continues to rise in South Korea and around 19 banks in Korea offer internet services. At the end of the

third quarter of 2010, there were around 6.1 million individuals (around 12.5% of the total adult population) using internet bankin

South Korea, according to the BOK, an increase of 11.5% on the same period of 2009 when around 5.6 million people used interne

banking services. Due to this rise in popularity among businesses, some local banks have phased out telephone electronic banking

operations.

Online funds transfers are limited to KRW 100 million per transaction and KRW 500 million per day for individuals.

With the implementation of the Digital Signature Act, all internet transactions made with digital certicates are legally valid in

South Korea. An internet banking user must obtain a digital certicate from a certication authority.

Furthering efforts to protect identity, new requirements under the Basic Act on Electronic Financial Transactions, passed in

April 2006, oblige all nancial institutions offering online banking in South Korea to use two-factor authentication. The new

requirements became effective in January 2007.


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Trade Finance

Overview of trade agreements with other countriesAll trade is now free between South Korea and the Association of South East Asian Nations (ASEAN) member states. South Koreasigned a free trade agreement (FTA) with the United States in April 2007, though it has not yet been ratied by either countrys

legislatures. In October 2009, South Korea signed an FTA with the European Union, removing the all but a few import duties on

goods traded between the two partners. In August 2009, South Korea agreed the terms of a Comprehensive Economic Partnership

Agreement (CEPA) with India. It also signed a CEPA in December 2009 with the United Arab Emirates.

In addition, South Korea has established bilateral trade agreements of some form or another with Chile, Singapore, Peru,

Kyrgyzstan and EFTA. It is currently involved in free trade talks with Australia, Turkey, Vietnam and Canada.

General trade overview including any government policyTrade and customs in South Korea are governed by the External Trade Act and the Customs Act respectively. The government has

pursued a policy of trade liberalisation; however, trade with North Korea still requires approval from the Ministry of Unication.

Imports and exports

Goods Services Income

Figures for 2009 USD billion % of GDP USD billion % of GDP USD billion % of GDP

Imports 317.5 34.8 75.7 8.3 11.2 1.2

Exports 373.6 40.9 58.5 6.4 15.7 1.7

Balance + 56.1 + 6.1 17.2 1.9 + 4.6 + 0.5

Source: IMF International Financial Statistics, October 201

Main trading partners for imports and exportsImports China 16.8%, Japan 15%.3, (European Union 10.0%), United States 9.0%, Saudi Arabia 6.1%.

Exports China 23.9%, (European Union 12.8%), United States 10.4%, Japan 6.0%, Hong Kong 5.4%.

Source: WTO, October 201

Main traded products / sectors share of total imports and exportsImports Manufactures 46.2%, fuels and mining products 28.8%, commercial services (excl. travel and transportation) 9.6%,

transportation 5.9%, agricultural products 5.3%, travel 3.4%.

Exports Manufactures 76.6%, fuels and mining products 7.3%, transportation 6.9%, commercial services (excl. travel and

transportation) 4.5%, travel 2.2%, agricultural products 1.7%.

Source: WTO, Ocotber 201


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Documentation requirements for imports and exportsA commercial invoice, including a full description of the goods, a bill of lading, a packing list and a customs declaration are

needed for importing and exporting items into and out of South Korea. A terminal handling receipt and a cargo release order are

also needed for imports.

Licence requirements for imports and exportsThe Korea Trade Commission may implement import quotas for products it judges harmful to Korean industry, but most goods do

not require a licence for import, the main exception being rice, which does require a licence.

Meanwhile, all items can be exported from South Korea, excluding those placed on the negative list. Licences with quotas are

required for only four commodities.

Taxes, tariffs and other fees on imports and exportsThe Harmonised Customs System applies to all imports from outside South Korea. Imports into South Korea are subject to a

variety of tariffs assessed on an ad valorem basis at an average of around 8%. Excise taxes are higher for alcohol and cigarettes.High tariffs may be waived for foreign investors.

No taxes are levied on exports from South Korea.

Country export credit agencyEstablished in 1976, the Export-Import Bank of Korea (Korea Eximbank) is the an ofcial, state-owned export credit agency that

provides supplier credit, export buyer credit, credit for pre-export nancing and guarantee programmes. It also provides oversea

investment credit and is responsible for managing two government funds for development assistance, The Economic Developmen

Co-operation Fund and the Inter-Korean Co-operation Fund.

The Small and Medium Business Administration (SMBA) offers policy loans for small to medium-sized exporters. Domestic and

foreign-owned commercial banks in South Korea can also provide export nancing.

The wholly state-owned Korea Export Insurance Corporation (KEIC) is the countrys ofcial export credit insurance provider whic

insures short-term export risk (where the risk period involved is less than two years), long term (where the risk period involved

exceeds two years) export supplier credit and long-term export buyer credit. It also provides insurance for losses arising from

overseas construction works, overseas investment, foreign exchange risk, interest make-up and export bonds. In addition, it

provides post shipment repayment guarantees for SMEs.

KEIC is able to insure up to 95% of the risk amount when there is commercial or political risk involved. It insures up to 90% for

buyers credit under medium and long-term export contracts.

The Korea Eximbank operates in accordance with the international legal framework on export credits and credit guarantees

developed by the OECD (Organisation for Economic Co-operation and Development) which includes the international Arrangemen

of Ofcially Supported Export Credits (OECD Consensus). The OECD Consensus only applies to long-term export credit. The KEICoperates in accordance with the 1968 Export Insurance Law and its subsequent amendments.

KEIC is a member of the Berne Union or, ofcially, the International Union of Credit and Investment Insurers, a leading

international organisation for export credit and foreign investment insurers. South Korea also participates in the Asian

Development Bank, aimed at assisting developing member states in Asia.

Neither imports nor exports are subject to nancing requirements.


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Export credit programmesThe Korea Eximbank is responsible for managing South Koreas ofcial state-supported export nancing programme.

The KEIC is responsible for operating South Koreas ofcial state-supported export credit insurance programmes. The Ministry of

Commerce, Industry and Energy oversees the work of the KEIC and provides policy guidance.

KEIC has established a reinsurance agreement with EKN of Sweden and has signed co-operation agreements with approximately

eight foreign export credit agencies.

List of prohibited imports / exportsCertain items are prohibited from being imported into South Korea, to protect fauna and ora, national security and for moral

reasons.

There is also a negative list of products whose exports are prohibited.


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Glossary

BOK-Wire+

The Bank of Koreas real time gross settlement system. In April 2009, the

system was upgraded, becoming a hybrid system, with bilateral and multilateral

settlement processes.

ChaebolKorean word for conglomerates, such as Hyundai, which have been a major force in

the South Korean economy.

CTS

(Cheque Truncation Service)

Cheques are exchanged and paid based only on the relevant information provided

through an interbank information network with no physical movement of cheques.

Cashiers cheques are cleared in this manner.

Debit transfer

A pre-authorised direct debit, widely used to effect regular low-value payments. A

debit transfer can be made through the Bank Giro System or the Cash ManagementSystem.

FINS (Financial Information

Networks Systems)

A system that interconnects the computers of all banks in Korea through its relay

computers to process nancial transactions between banks in a prompt and secure

way. The system is operated by the KFTC.

Free won account

The term used for a non-resident domestic settlement account, which can be used

for current transactions, reinsurance contracts and inward investment in domestic

securities.

K-CashOne of three pre-paid card systems in South Korea. It is the only pre-paid card

processed through the e-money payment system operated by the KFTC.

KFTC

(Korea Financial and

Telecommunications Clearing

Institute)

Organisation established in 1986 by member banks to provide efcient and reliable

payment services in Korea. The KFTC operates South Koreas retail payment

systems and divides its operations into the Cheque Clearing System, the Bank Giro

System, the Financial Information Networks Systems (FINS) and Electronic Money.

In addition, the KFTC also manages a B2B and a B2C e-commerce payment service,

which support e-commerce transactions and fund transfers.

ORB

(Online registered bill)

Electronic bill used in the B2B E-commerce Payment System developed by the

KFTC, which has the payment features of a cheque and also a credit function.


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J.P. Morgan Treasury Services representative

or visit jpmorgan.com/ts

2010 JPMorgan Chase & Co All Rights Reserved JPMorgan Chase Bank N A Member FDIC All services are subject to

The material contained in this report is not intended to be advice on any particular matter. No subscriber or other reader should act on thebasis o any matter contained in this report without considering appropriate proessional advice. J.P. Morgan and its contracted inormationsupplier expressly disclaim all and any liability to any person, whether a purchaser o this report or not, in respect o anything and o theconsequences o anything done or omitted to be done by any such person in reliance upon the contents o this report.

10.11.18 jpmorgan update south korea

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