"If a nation were to make a bilateral agreement with another, so that their respective exim banks provide a guarantee service for import financing, we could all benefit, in that the current tight trade financing situation would be ease," Lee said.

"In effect, these bilateral agreements would facilitate intra-regional trade," Lee told a media conference on Asia's economic crisis.

At least half of South Korea's exports go to other Asian countries including Japan, whose economy is also in a severe slump. Much of Asia's trade is intra-regional, as well.

The banking crisis "now endemic in the region has adversely affected trade financing, which in turn has stymied intra-regional trade," Lee said.

"Specifically, banks are reluctant to provide financing to exporters and importers due to increased risksthey themselves face," he added.

Seoul has already adopted "a more flexible monetary policy" to encourage credit extension by healthy banks to small and medium enterprises, Lee said.

Lee also told the conference that the first round of financial sector restructuring would be completed by the end of this month.

South Korea has so far this year closed 16 troubled merchant banks, two securities companies and one investment trust. The operations of a number of others have been suspended.

The government has arranged for five ailing commercial banks to be taken over by healthier ones and three major bank mergers have been announced over the last month or so.

The government is mobilising $40 billion in fiscal resources to support financial sector restructuring, he said.

The resources would be used to dispose of non-performing loans, recapitalise banks and provide depositor insurance.