* 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
* Disagreement could cause payment delays for Korean
By Meeyoung Cho
SEOUL, Aug 16 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
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
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