FSC Responds to Naphtha Supply Issues... Expands Credit Line Limits for LCs with Overdraft Features

Establishment of a Joint Financial Support System

LC Issuance Process Shortened from Six Weeks to Three

Risk Diversification through Import Insurance

The Financial Services Commission is expanding the limits on letters of credit (LC) to support the smooth import of raw materials by petrochemical companies, following a sharp increase in naphtha prices due to instability in the Middle East.

Kim Jung-kwan, Minister of Trade, Industry and Energy, is delivering opening remarks at the "Crude Oil and Naphtha Supply Response Review Meeting" held on April 15, 2026, at the Coal Hall in Jongno-gu, Seoul. Photo by Kang Jinhyung

On April 23, the Financial Services Commission announced the establishment of a new "Joint Financial Support System for Naphtha Imports amid the Middle East Situation," which reflects these measures.

A letter of credit is a payment instrument in which a bank guarantees payment to an overseas seller on behalf of an importer. It effectively serves as a 'bank guarantee' that is essential when importing raw materials.

This measure comes in response to growing uncertainty in the domestic supply of naphtha—a core raw material for the petrochemical industry—due to the prolonged situation in the Middle East. After reviewing recommendations raised at a meeting with the petrochemical and refining industries on April 7, the Financial Services Commission established this joint support system through multiple consultations with financial institutions.

First, the financial sector plans to actively support the financing needs of petrochemical companies importing naphtha by increasing the LC limits for their naphtha import contracts.

Given the large import scale and high price volatility of naphtha, the intention is for banks to expand their guarantee amounts so that companies can secure stable supplies of raw materials.

When a petrochemical company applies to its main creditor bank for LC support, the bank will review the company's financial situation and import needs, then coordinate with other creditor banks to swiftly decide on support. Multiple banks will participate to share the guarantee burden, with the division of responsibility proportional to each bank's loan exposure to the company.

In addition, the Korea Trade Insurance Corporation will complement financial support through import insurance. This acts as a kind of "safety net" by compensating for a certain portion of losses if a petrochemical company fails to repay due to business difficulties, enabling banks to issue letters of credit more proactively.

To reduce the time required to increase LC limits, financial authorities will introduce a streamlined review process and, led by the main creditor bank, will pre-check the naphtha import demand and financial situation of petrochemical companies. As a result, the process, which typically took more than six weeks, will be shortened to within three weeks.

Furthermore, even before the LC limit is expanded, if overseas suppliers request proof of the possibility of LC issuance during the import contract process, the main creditor bank will promptly issue a letter of intent (LOI) to ensure contracts proceed smoothly.

Financial authorities have also decided to apply exemption clauses so that this joint support system can function effectively. In cases where loans, guarantees, investments, or maturity extensions are provided for the purpose of stabilizing the financial market through government consultation, those in charge will not be penalized unless there is willful misconduct or gross negligence.

Looking ahead, the Financial Services Commission stated that main creditor banks will guide individual petrochemical companies on the procedures and details of the support system to ensure they can fully utilize financial support for naphtha imports.

This content was produced with the assistance of AI translation services.