* Iran asks to raise interest from 0.1 pct, or switch to other Korean banks
* Move seems to press S.Korea to resume imports of Iranian oil -analyst
* Disagreement could cause payment delays for Korean exporters
By Meeyoung Cho
SEOUL, Aug 16 (Reuters) - Iran has asked South Korea to increase the interest rate on billions of dollars of its cash trapped in two government-owned banks, a Korean central bank source said on Thursday.
The move seems designed to send a message to Iran's fourth-biggest oil buyer that its compliance with Western sanctions, which led to a 17 percent cut in its imports of crude from the Islamic Republic in the first half of 2012, will carry a cost.
Iran's central bank has won-denominated accounts at Industrial Bank of Korea and Woori Bank, both owned by the Korean government, to settle payment for its oil sales to Seoul, and its product imports from the Northeast Asian country.
Iran cannot repatriate the money because of the sanctions.
"Iran considers interest rates of 0.1 percent are too low and has requested to raise them or move the money to other banks," a Bank of Korea source who has direct knowledge of the matter told Reuters by telephone, but gave no other details.
The source declined to be identified as he was not authorised to speak to the media. Iranian embassy officials in Seoul could not be reached for comment outside business hours.
Disagreement over the accounts could cause payment delays for South Korean firms, domestic media have said, although it is unlikely that Tehran, whose major interest is to keep crude flowing to top consumers, will completely shut them.
"The move appears to pressure South Korea to resume its oil imports as Seoul halted the imports even after it received a sanction exemption from the United States," said one oil analyst, who declined to be identified due to the sensitivity of the matter.
South Korean refiners plan to resume buying crude from Iran in September after a two-month hiatus due to a European Union embargo that made shipping the oil difficult, government and refining sources have said.
Since July 1, South Korea has suspended imports of Iranian crude due to a European ban on insuring tankers that carry Iranian oil, leaving the accounts with no cash inflow.
Quoting industry sources, South Korea's news agency Yonhap said Iran wanted interest rates of around 3 percent a year, which is usually paid for a six-month deposit in Korea, and if talks with its existing banks failed, it was considering switching to two other banks, NH Nonghyup and Korea Eximbank.
Officials at both NH Nonghyup, a bank funded by a farmers group, and Korea Eximbank, which is owned by the Korean government, said no request had been made by Iran, nor had they considered such a scenario.
"The risks are higher than the payback," one official said. "Even if we have such accounts, we can only offer 0.1 percent as it is not a certain-term deposit account, but an account where you can withdraw money whenever you want."
Holding accounts for the central bank of Iran carries an implied risk for any bank under U.S. sanctions. If the United States were to remove its waiver to South Korea, the financial institution that executes oil transactions could be sanctioned.
However, it is unlikely Iran will close its Korean accounts completely as Tehran wants to keep its crude flowing to South Korea, China, India and Japan, which are its top four customers, who buy more than half its oil exports.
They have slashed Iranian purchases this year, though, under pressure from the EU and U.S. sanctions, aimed at squeezing its oil income to curb its nuclear programme, which the West fears is directed at developing weapons, a motive Iran denies.
In the first six months of 2012, South Korea's imports of crude from Iran stood at 190,000 barrels per day (bpd), down 17 percent on the year.
While it is not clear how much cash is currently held in the two Korean bank accounts, Iran's total trade surplus with Korea in 2011 and the first half of 2012 was $7.4 billion, data from the Korea International Trade Association (KITA) shows.
South Korea in June imposed curbs on its exports to Iran -- mainly steel, cars and electronics -- to reduce its risk of payment defaults under the sanctions. The government estimated around 2,000 Korean firms export goods to Iran. (Additional reporting by Vincent Lee; Editing by Clarence Fernandez)