Value context and insight. lkm@koreatimes.co.kr
Big Korean banks suffer $216 million in FX losses in Q1 on strong dollar
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By Lee Kyung-min
The foreign exchange (FX) operations of four leading commercial lenders in Korea suffered a combined loss of 300 billion won ($216 million) in the first three months of this year, hamstrung by the strong U.S. dollar, market watchers said Friday.
Many anticipate further losses in the coming months, as foreshadowed by the drastic decline in FX operating incomes of 20 banks last year. This income plummeted to 3.9 billion won, marking a staggering 99.8 percent decrease from a year earlier.
Central to the concern is the sharp depreciation of the won. The value of the Korean currency plunged below the 1,400 level against the dollar on April 16, buffeted by the escalating conflict in the Middle East. The a 17-month low and an unsettling breach of the 1,400 won barrier was worrisome, particularly because two of the three previous instances were linked with full-blown economic crises. Some brokerages say the value of the Korean currency may decline further to 1,450 won.
According to market data, KB Kookmin, Shinhan, Hana and Woori registered a combined net loss of 301.7 billion won in FX operations in the January to March period.
Woori and KB suffered deficits of 350.8 billion won and 77.3 billion won, respectively.
Shinhan and Hana posted a respective profit of 87.8 billion won and 38.6 billion won. But the figures were down 13.4 percent and 45.9 percent from a year prior.
Concerns continue in the industry over the sustained strong investor preference for the global top reserve currency.
"FX volatility is a profit negative for financial entities," an industry official said.
FX trading aside, foreign currency debts and liabilities of banks are tied closely to their holding firm's capital soundness assessed for accounting.
"A weak Korean currency translates into higher foreign currency debt, a red flag — however brief they may be," the official said. "More worrisome is deteriorating financial profile of holding firms amid global investors preferrence for safe-haven assets."
Brokerages say the strong dollar trend is not likely to lose momentum any time soon, sustained by high borrowing costs in the United States. Rising fears of a war in the Middle East is also a factor.
"The Korean won will breach the psychologically significant 1,400 won barrier, provided geopolitical risks do not see meaningful improvements," said Korea Investment & Securities head of research Yoo Jong-woo.
"Market expectations of a U.S. rate cut continue to be pushed back, fortifying downward pressure on the Korean currency. A weakening in the strong dollar may come in the second half of the year, dependent upon geopolitical issues finding a breakthrough."