A customer walks out of a branch office of the Kookmin Bank in Seoul...A customer walks out of a branch office of the Kookmin Bank in Seoul April 30, 2010. KB Financial Group, South Korea's No. 2 banking group by market value and the parent of top domestic bank Kookmin, reported the best quarterly profit in its near two-year history, beating forecasts, as interest margins expanded and provisioning burdens eased. REUTERS/Jo Yong-Hak (SOUTH KOREA - Tags: BUSINESS) - RTR2DADD
KB Kookmin, South Korea’s largest retail bank, last week rolled out a trust fund that allows North Koreans to inherit and receive funds of relatives in the south upon their death © Reuters

South Korea’s biggest lenders are banking on inter-Korean reconciliation as they roll out financial products aimed at potential customers north of the border.

The development, however — while likely to be welcomed by the pro-engagement Seoul administration of President Moon Jae-in — runs the risk of further aggravating Washington, which is attempting to maintain pressure on North Korea with strict international sanctions.

The Moon administration is already reeling from revelations that South Korean companies flouted UN sanctions last year by importing 35,000 tonnes of North Korean coal and pig iron.

Questions have also been raised about Seoul’s decision to supply a joint liaison office in the north with 80 tonnes of refined oil and diesel — an amount critics deem to be in excess of what is needed to run the small office.

The twin developments, analysts say, have damaged Seoul’s credibility in the eyes of Washington. Under US President Donald Trump, the White House is attempting to coerce North Korea to abandon its nuclear weapons by using sanctions to isolate it from global trade and finance.

But South Korea’s banks are moving to position themselves in the hope that sanctions may be lifted and inter-Korean economic co-operation will pick up steam.

KB Kookmin, the country’s largest retail bank, last week rolled out the “North Korea family love” trust fund, which allowed North Koreans to inherit and receive funds of relatives in the South upon their death.

The fund was announced to coincide with reunions of hundreds of family members, who have been separated by the division of the two Koreas following the second world war. Most of those attending were aged in their 80s and 90s. 

“We are going to make an effort to develop products and services that can help and share the grief of separated families,” said an official at KB Kookmin.

Meanwhile, Nonghyup, the country’s agricultural lender, said it was considering reopening a branch in North Korea’s Mount Kumgang tourist zone, as well as selling a unification-themed fund.

Another large player, Shinhan Financial, said it had launched a working group to explore ways to provide financial support for inter-Korean co-operation.

“The banks are following subtle leads from the government. But banks are banks. Profit-making must be the raison d’être [of their plans],” said Bong Young-shik, a North Korea expert at Yonsei University in Seoul.

“If the banks have massive plans [to tap North Korea], it shows they have confidence in Moon’s ability to sustain progress with the North,” he said, adding that the opposite was also true.

A report by the IBK Economic Research Institute found that Mr Moon’s economic integration plans could boost South Korea’s annual gross domestic product by a percentage point and create hundreds of thousands of jobs.

While inter-Korean engagement has maintained pace, diplomacy between the US and North Korea has shuddered to a halt in recent weeks, with the focus now on Pyongyang’s demand for a declaration ending the officially unfinished Korean war.

Additional reporting by Kang Buseong and Song Jung-a

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