Banking with Islamic Bank
Woori Bank announced on Jan. 12 that it has become Korea's first bank to use Islamic financial techniques for making a financial transaction worth US$10 million (12.13 billion won) with Qatar Islamic Bank on the 11th through its Bahrain branch by.
Financial transactions with banks in the Islamic region have been ignored by Korean banks due to complicated transaction terms using actual assets, according to Islamic Shariah law, which prohibits acceptance of specific interest or fees for loans of money, and ensuing tax issues. In this regard, Woori Bank made direct financing possible with the Islam bank through Murabaḥah, one of the most popular modes of financing by Islamic banks and financial institutions, by making use of its overseas branches in Islamic countries.
Murabaha is a mode of financial transactions by the media of actual assets. In this case, Qatar Islamic Bank will buy and sell actual assets at the same time after taking out a loan from Woori Bank’s Bahrain branch for actual asset purchase purposes. Then, it will manage funds during the contract period and give the principal and earnings to Woori Bank’s Bahrain branch on maturity. This mode is commonly used in financial transactions between global banks, which run business in the Middle East, and Islamic banks.
An official from Woori Bank said, “The bank has the largest network in the Islamic region among domestic banks. The financial deal with Qatar Islamic Bank is aimed at securing new income sources overseas and cushioning the impact of market volatility resulting from a series of U.S. rate hikes expected throughout this year on the domestic market. Based on its overseas branches in the Islamic region, the bank is planning to expand financial deals with Islamic banks, and continuously take part in the Islamic financial market in the future.”
Meanwhile, Woori Bank has become the nation’s first bank to open the 200th overseas branch on Nov. 26 last year, and currently runs the global network in the Islamic regions, such as Bahrain, Dubai, Dacca, Kuala Lumpur and Indonesia.