As the war between the United States and Iran disrupted supplies of naphtha, a basic raw material for petrochemicals, the financial authorities and the financial sector set up a joint support system.
The Financial Services Commission said on the 23rd that it prepared a "joint financial-sector support system for naphtha imports amid the Middle East situation" with the financial sector to support the smooth import of naphtha quickly and efficiently.
Financial firms will expand import letter of credit (L/C) limits to support petrochemical companies that import naphtha. An L/C is a payment instrument under which a bank guarantees payment to the seller on behalf of the importer.
Seventeen banks, including Industrial Bank of Korea, Export-Import Bank of Korea, KB Kookmin, Shinhan, Hana, Woori, and NongHyup, as well as the Korea Trade Insurance Corporation, will expand L/C limits for naphtha import contracts signed by petrochemical companies that import naphtha.
When corporations apply to their main creditor bank for L/C support, the main creditor bank will promptly provide support after consultation with the creditors' council and proceed with institution-by-institution allocation procedures. The Korea Trade Insurance Corporation will also provide import insurance during this process.
It usually takes more than six weeks to expand L/C limits, but a simplified due diligence will be conducted to shorten the time to within three weeks. The main creditor bank will also conduct prior monitoring of petrochemical companies' naphtha import demand and funding status.
Even before L/C limits are expanded, if, during the naphtha import contracting process, an exporter requests proof of the capacity to open an L/C, the main creditor bank will promptly issue a letter of intent (LOI), among other documents, to support the corporation's smooth import contracting.
The Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) plan to apply indemnity provisions for responsible personnel, in cases without intent or gross negligence, so that financial support for naphtha imports under the joint support system proceeds smoothly.