S Korean Exporters File Suit Against Banks Over Forex Losses

SEOUL (AFP)--South Korean exporters Monday filed a class action suit against 13 major banks, saying the currency options they hold should be nullified amid huge losses caused by the won's steep decline.

Hundreds of small exporters took out the options contracts known as "knock-in knock-out" (KIKO) in recent years to hedge against currency movements.

If the dollar soars beyond a given range, the firms stand to mark up hefty losses on their contracts.

The won's steep fall of around 30% against the dollar this year has hit them hard. Combined losses reached 1.7 trillion won ($1.3 billion) as of August, according to the Financial Services Commission (FSC) watchdog.

Exporters say the banks failed to explain the high risk associated with the options and passed on their own forex losses to the exporters.

Kim Moo-Song, a representative for a group of 97 exporters filing the suit, said that when the dollar soars exorbitantly against the won, the options violate the principle of good faith.

"The system doesn't function as a hedge," he told Yonhap news agency.

The suit involves 13 foreign and local banks, including U.S. Citibank, Britain's Standard Chartered Bank and South Korea's Shinhan Bank and Korea Exchange Bank.

According to a report by the FSC last month, Korea Exchange Bank, Citibank and Shinhan Bank accounted for 70% of all companies involved in the KIKOs.

It said Korea Exchange Bank traded with 209 firms, whose combined losses amounted to KRW322.5 billion. Citibank sold the options to 134 firms that suffered KRW408.9 billion in combined losses, followed by Shinhan Bank with 117 firms that lost KRW327.2 billion.

The options "are unfair and violate the principle of good faith, which makes them invalid," Kim was quoted as saying.

A group of 100 other smaller exporters plan to file a similar lawsuit next week.

The government has promised help for small firms hit by losses over the options.