Iranian lender Bank Mellat may have to consider pulling its operations out of South Korea with its hands tied here due to the looming fears of secondary boycott actions from the US.

“With the upcoming US presidential election, the pressure on Iran will only escalate. Bank Mellat may have to consider closing its operations in Korea,” an official from Bank Mellat’s Seoul branch said.

The official explained the Seoul unit has not been able to fully operate, as Korean companies, including local banks, are unwilling to associate with Iranian lenders, threatened by potential penalties from the US.

"In the case of a political turnover in the US, companies will be pressured even more and be even more reluctant to be associated with an Iranian bank,” the official said.

Bank Mellat is 20 percent owned by the Iranian government and 80 percent privately held. The Seoul unit is the lender’s only overseas branch in Northeast Asia. Bank Mellat is the only Iranian bank operating in Korea as well.

The lender has also been engaged in a lawsuit with Woori Bank, one of the top four commercial lenders here, over a frozen fund worth around 20 billion won ($14.5 million). It filed a lawsuit against Woori Bank, demanding to return the deposit and payout the 6 billion won interest, but the request was dismissed by the Seoul Central District Court earlier this month. Bank Mellat has appealed to a higher court.

Woori Bank’s legal representatives claimed the commercial lender had to freeze the account to avoid a secondary boycott from the US as Bank Mellat is included in the Specially Designated Nationals and Blocked Persons List, or the SDN List, drawn up by the US authorities. Bank Mellat refuted Woori Bank would not face the risk of receiving penalties from the US even if it responds to its request.

The court acknowledged Woori Bank’s concern, saying the risk of US sanction exists through its ruling.

The Seoul-Tehran ties seemed to improve when Korean lenders decided to release their past withholding of around $6 billion in Iranian funds under US sanctions in August last year, following a prisoner swap deal between the US and Iran.

The $6 billion fund was reported to be frozen again in the following month due to Iran's suspected links to the militant group Hamas.

If Bank Mellat decides to close its operations in Korea, it would not be the first time. Bank Mellat first opened its Seoul branch in 2001, but was barred from business in 2010, due to sanctions on the country’s suspected nuclear weapons program.

It reopened the Seoul branch in 2016, following the ease of international sanctions on Iran after the UN's nuclear watchdog confirmed it had complied with a deal designed to prevent it from developing nuclear weapons.

The Seoul branch has been the pivot of Bank Mellat’s expansion in the Northeast Asian region, according to a management disclosure report from the second quarter of this year.

“The operating strategy for the Seoul branch is to provide export-related financial services to bridge Iran and Asian countries, including Korea, China and Japan,” the bank explained in the report.