The Ministry of Commerce, Industry and Energy (MOCIE) announced that it has established an 'e-L/C Distribution and Management System,' which can process all L/C transactions via the Internet for the first time in the world, as part of its first-phase project for e-trade service.
Five commercial banks, including SC First Bank Korea, have linked with this system and plan to implement the e-L/C distribution service for trading companies in advance. Other banks also are preparing for possible launch of the service within this year, according to the ministry.
The ministry said that the e-system is also linked with the Korea Financial Telecommunications & Clearings Institute (KFTC) to check and control the payment ceiling for the L/Cs of export firms safely.
At present, the number of export L/Cs that are distributed domestically is about 600,000 per year, accounting for 30% of total export payment settlement methods. To date, export firms have had to visit their transacting banks in person, hand-carrying L/Cs issued by the banks of importers, to receive export payments after getting documents negotiated. As negotiating banks handwrote payment details on the back of L/Cs, more than a few controversies occurred over the paper L/C's legibility and falsification/forgery, duplicate payment, etc.
With the launch of the e-L/C service, however, the entire content of the paper L/C will be in electronic format so export firms can see the details of the L/C and transactional record at a glance. As a result, transactional transparency will be secured and the possibility of forgery/falsification and loss are expected to disappear.
In addition, the processing time for L/C-related transactions will be shortened to less than 30 minutes from four hours and savings also will be realized in transport expenses, manpower cost, etc. Therefore, the ministry forecasts that the domestic trading business community will be able to cut expenses by more than eight billion won annually, and the annual reduction amount will reach as much as 20 billion won in 2010 when e-trade is in wide use.
The ministry also expects the e-L/C distribution system to not only provide better-quality trade services for trading companies but also to contribute to the enhancement of internal work efficiency for banks. For realization of e-distribution of important trade documents in the future, the ministry plans to establish a distribution and management system for five kinds of e-trade documents in addition to e-L/C in the second-phase project for e-trade service and to expand them further to a total of 10 types by 2007.
In connection with the implementation of Basel II (International Convergence of Capital Measurement and Capital Standards, a Revised Framework), in particular, the present e-L/C distribution system will contribute to effective solutions for banks' asset risk management.
Scheduled to be introduced at the end of 2006, Basel II is a new criteria of the Bank for International Settlements (BIS) to assess the soundness of assets. It is characterized by significantly reinforced credit risk and new introduction of the operational risk concept. Therefore, banks will be required to make additional investments in IT in order to address related risks in the future.