March 31, 2020 21:16

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Businesses active before exchange rate development

14:23 | 24/02/2020

VCN – From the beginning of the year, foreign exchange rates saw strong fluctuations, increasing and decreasing in a high range. This makes importers and exporters cautious overthe exchange rate development.  

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businesses active before exchange rate development
Exchange rate is always a concern of businesses. Photo: ST

Expect stability

2019 recorded a high level of exchange rate stability. The exchange rate stability helped many businesses reduce losses due to exchange rate differences. Typically, Vietnam National Petroleum Group (Petrolimex), suffered a loss of as much as VND621 billion due to exchange rate differences in 2018, but it was only VND160 billion in 2019. Power Generation Corporation 3 (Genco 3) in 2020 estimated that the exchange rate loss would be VND1,067 billion, while there was a time when this company recorded a loss of over VND3,000 billion. The reason for these losses decreased due to not only the internal strength of the company but also the stability of exchange rates.

But in early days of 2020, due tothe Covid-19 epidemic, exchange rates of many foreign currencies fluctuated. The most common currency, the US dollar, has also witnessed many abnormal changes in the past two weeks. Accordingly, from the beginning of February, the central exchange rate announced by the State Bank of Vietnam (SBV) has continuously increased to the highest levels ever, making the listed exchange rates at commercial banks also increase and decrease sharply.

Speaking about this issue, a representative of Sigma Trading and Services Joint Stock Company (a company specializing in importing construction materials) said that the continuous fluctuation of the exchange rate has a significant impact on the company’s material import orders. This makes it more difficult for the company to calculate an appropriate selling price to customers. At the same time, the leader of a textile company also saidthat due to the restricted trade with China, the company had to look for other markets to import raw materials, but because of exchange rate fluctuations, the increase was more than reduction andthe selling price was affected. He estimated that the company had to spend 10-20% of the value of goods compared to the past to import raw materials from new markets.

However, all businesses assessed that these were exchange rate fluctuations in the short term, so they fell on a passive situation. Moreover, this is also the beginning of the year and the situation of epidemics and trade has seen complicated movements, so the exchange rate has followed suit. In the long term, businesses believed that the state would have regulatory policies to stabilize the exchange rate, or ensure a slight increase compared to 2019. These beliefs are supported because experts of MBS Securities Company wereoptimistic to say that, witha good economic situation, a large trade surplus and a large investment inflow into Vietnam, the VND / USD exchange rate in 2020 will remain stable within arange of 1-2%.

Must be proactive

Although there are many optimistic forecasts, the exchange rate in 2020 is still a "secret", so the losses or benefits of businesses depend on the path of the exchange rate as well as the preparations of each business. Vietnam is a country with high market openness, so it will also be affected by external economies, impacts of exchange rate fluctuations on the economy will be inevitable. However, in recent years, the SBV has committed to keeping the exchange rate stable and ready to sell foreign currency reserves when necessary to help stabilize the market. As a result, businesses can somewhat anticipate exchange rate risks in their estimates, as well as have insurance solutions through term contracts or foreign currency options at credit institutions.

In particular, according to Circular No. 42/2018 / TT-NHNN amending and supplementing a number of articles of Circular No. 24/2015 / TT-NHNN, commercial banks officially stopped offering foreign currency loans to businesses who have demand for medium and long-term foreign currency loans to pay for imported goods and services. Instead, businesses indemand for short-term foreign currency loans must switch from borrowing to buying foreign currencies in the market or borrowing capital in VND. Therefore, since October last year, many businesses had to actively seek foreign currency or cheap capital in VND.

Mr. La Hong Quang, General Director of A Chau Tea Joint Stock Company, said that the company always uses USD foreign currency in transactions so it gainsabundant sources of income and profits in foreign currencies. Moreover, because it is a long-standing and reputable company, it is always offered preferential interest rates by banks.

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It can be seen that, recently, in the face of many market fluctuations, businesses have been more proactive in seeking solutions to manage cash flow and effectively control exchange rate and interest rate risks, thereby avoiding shocks when the market experiencesnegative fluctuations, while helping keep business operations stable. However, the unexpected factors and force majeure of natural disasters and epidemics are always unpredictable, so businesses still have to closely monitor exchange rates to have flexible and appropriate policies.

By Huong Diu/ Huyen Trang