"Modest Improvement in Corporate Net Profit Due to Exchange Rate Rise... 59% View High Exchange Rate Negatively"

On the 26th, the KOSPI opened at 2312.54, down 1.15 points (0.05%) from the previous trading day, at the Hana Bank dealing room in Jung-gu, Seoul. The won-dollar exchange rate opened at 1276.0 won, down 4.8 won from the previous trading day. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Seo So-jeong] Recently, although the operating profit of companies slightly decreased due to the rise in the won-dollar exchange rate, the net profit for the period showed a slight improvement as non-operating income increased. In particular, profitability improvement was notable in the manufacturing sector, which has a high export ratio and large net foreign currency assets.

The Bank of Korea announced on the 26th through the report "Issue Monitoring: The Impact of Exchange Rate Increase on Companies" that a survey was conducted on a total of 327 companies from the 10th to the 30th of last month, revealing these results.

The won-dollar exchange rate has been on the rise since last year, accelerating sharply after the U.S. Federal Reserve's (Fed) interest rate hike in March this year, approaching 1,440 won in September, and has recently maintained around 1,300 won. Accordingly, the average exchange rate this year was 1,292.7 won as of the 21st, marking a 12.9% increase compared to last year, reaching the highest level since the foreign exchange crisis.

The Bank of Korea explained, "Although operating profit decreased slightly due to the exchange rate increase, net profit for the period improved slightly as non-operating income increased," adding, "Non-operating income is mainly influenced by the size of net foreign currency assets (foreign currency assets minus foreign currency liabilities), and as of the end of September, the proportion of companies with positive net foreign currency assets was higher than those with negative net foreign currency assets."

By industry, profitability improvement was relatively large in manufacturing, which has a high export ratio and large net foreign currency assets.

Additionally, the exchange rate increase acts as a factor for raising domestic supply prices (in won) and lowering overseas supply prices (in foreign currency), but such price changes were found to be quite limited. However, the Bank of Korea analyzed, "The domestic price pass-through effect due to relatively increased domestic supply prices was found to outweigh the export price competitiveness improvement effect through lowered overseas supply prices," and "there is a possibility that the exchange rate increase may have a negative impact on the real economy in the short term."

Furthermore, only 40% of exporting companies hedge against exchange rate risk, and the hedge ratio relative to net export volume is often below 20%, indicating a high possibility of exchange losses (gains) occurring when the exchange rate falls (rises).

The Bank of Korea added, "59% of companies responded that a high exchange rate negatively affects their long-term growth," and "the appropriate won-dollar exchange rate level was suggested to be in the 1,200 won range for manufacturing and around 1,100 won for construction and service industries."

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