"Improvement in Corporate Net Profit Due to Exchange Rate Increase... 59% View High Exchange Rate Negatively" (Summary)

40% of Companies "Raise Domestic Prices Reflecting Sharp Exchange Rate Surge"

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 Kim Hyun-min 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 prominent in the manufacturing sector, which has a high export ratio and large foreign currency net 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 had been on the rise since last year, and after the U.S. Federal Reserve's (Fed) interest rate hike in March this year, the upward trend accelerated, 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, up 12.9% compared to last year, marking 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 foreign currency net assets (foreign currency assets minus foreign currency liabilities), and as of the end of last September, the proportion of companies with positive foreign currency net assets was higher than those with negative net assets."

By industry, profitability improvement was relatively large in manufacturing, which has a high export ratio and large foreign currency net assets. However, the Bank of Korea noted, "Since the surveyed companies were concentrated in manufacturing and large corporations, some caution is needed in interpretation."

Also, 4 out of 10 companies (39.8%) raised domestic sales prices this year reflecting increased costs due to the sharp rise in the exchange rate. Meanwhile, 60.2% of surveyed companies did not raise domestic supply prices (in won) despite the significant exchange rate increase this year, citing reasons such as maintaining competitor prices (20.3%), internal policies to suppress price increases (16.2%), and weak market dominance (15.5%).

Among companies that raised domestic supply prices due to the exchange rate increase, the proportion of exchange rate fluctuation reflected was highest at "20% or less" (61.5%). However, in the petroleum and chemical industries, 18.2% of companies reflected 80-100% of the exchange rate fluctuations.

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. The Bank of Korea stated, "The domestic price pass-through effect (domestic price increase) due to relatively higher domestic supply price increases outweighs the export price competitiveness improvement effect (overseas price reduction) through overseas supply price decreases," adding, "This suggests that the exchange rate increase may have a negative impact on the real economy in the short term."

Furthermore, only 40% of export companies hedge exchange rate risk, and many have hedge ratios below 20% relative to net export amounts, 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."

Regarding the average won-dollar exchange rate forecast for next year, 65.8% expected it to be in the 1,300 won range, followed by 14.7% in the 1,200 won range and 13.7% in the 1,400 won range, indicating that companies anticipate relatively high exchange rates to continue next year.

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