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Firms Cut Yen-Based Loan Holdings

Posted October. 29, 2007 03:32,   


The won has been getting stronger against the U.S. dollar in general, but weaker against Japanese yen recently.

As a result, South Korean enterprises are borrowing less in yen and more in dollars in order to lessen the burden from interest.

According to financial reports on October 28, the balance of borrowing in yen of five banks, Woori Bank, Shinhan Bank, Hana Bank, Industrial Bank of Korea, and Korea Exchange Bank, amounted to 872.7 billion yen as of October 24. This amount is smaller than the total at the end of last year (1.433 trillion yen) by 170.6 billion yen (16.4 percent).

The balance of loans in yen to enterprises from banks has been decreasing, registering 982.9 billion yen at the end of June; 978.8 billion yen as of the end of July; 947.2 billion yen as of the end of August, and; 901.6 billion yen at the end of September.

This is because the won-yen exchange rate, which had fallen below 750 won per 100 yen at the end of June, recovered to 773.43 at the end of July, and recently rose as high as around 800 won, adding weight to the burden of interest from borrowing yen.

A person who borrowed one billion yen at the end of July has to pay more in interest in won now because the loan in won increased from 7.7 billion to 8 billion won.

This burden is encouraging enterprises to avoid borrowing in yen and to convert loans in yen to won.

The Industrial Bank of Korea released an instrument named “Loans in Foreign Currency Converted into Loans in Won” to help borrowers in foreign currencies convert their loans to won on September 20. Foreign exchange loans amounting to 46.5 billion won were converted as of October 24. Most of the enterprises that did so were those that wanted to convert yen loans to won.

On the contrary, the balance of loans in dollars as of October 24 increased by 112 million dollars (1 percent) from 11.058 billion dollars at the end of last year to 11.17 billion dollars. Loans in dollars are rising because the interest burden has dropped as the won-dollar exchange rate has been falling steadily, hitting a new low in a decade and a month on October 26.