Foreign-Exchange Losses of Last Year 13 Times More Than the Operating Profit

Large corporations suffered a foreign-exchange loss which was 13 times more than the operating profit last year due to the rapidly floating exchange rate. Financial Supervisory Service (FSS) is making a plan to charge the higher interest rates on corporate loans for those companies which lack foreign-exchange risk management.

- Actual condition of exchange losses

One day before the foreign-exchange crisis, the range of the floating exchange rate of won and dollar marked only 1-2 won. However, the range of the floating exchange rate increased to 10 won in the fourth quarter (October-December) of the last year. Aviation service, marine transportation businesses, and semiconductor businesses suffered the big foreign-exchange loss. The listed companies suffered the foreign-exchange loss of around 4 trillion won. However, the listed companies marked the foreign-exchange profit of 1.6 trillion won in 1999 when the floating exchange rate was low.

Hynix Semiconductor Inc. raked up the biggest loss of 409.1 billion won, followed by Korea Electric Power Corp. with 404.8 billion won and SK Corp with 403.1 billion won.

Korean Air posted a foreign-exchange loss of 286.4 billion won, even though it made an operating income of 22.6 billion won. The situation of Asian Air and Hanjin Shipping Co. is similar.

In contrast, SK Global recorded a foreign-exchange profit of 32.6 billion won, Samsung SDI, 31.5 billion won, Korea Data System, 23.4 billion won.

An official of the FSS said that ‘According to the survey, aviation and marine transportation companies suffered the big loss due to the loan from foreign countries. Moreover, the foreign funds they had brought also attributed to the big loss’.

- If companies do not manage the foreign-exchange risk, higher interest rates on corporate loans will be charged. FSS Deputy Chairman Kang Byung-ho said at a seminar on corporate foreign-exchange risk management, "When domestic banks evaluate the corporate loans, foreign-exchange risk management will be included in the evaluation item’. This means that banks will charge the higher interest rates on corporate loans.

FSS will continue to improve the foreign-exchange related public policy in order to keep the fairness in its evaluation of companies’ foreign-exchange risk management. FSS is planning to lower the margin requirement in forward exchange transaction and to induce the development of hedge related deposit products in order for the large companies to reduce foreign-exchange risk.

Lee Hoon dreamland@donga.com