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Exchange rate fluctuations cause headaches for businesses
What are businesses doing in response to the State Bank of Vietnam’s decision to devalue the dong/dollar exchange rate by two percent? They have to be more cautious when considering their business strategies.
Tran Tuan Duong, Steel Production Director of Hoa Phat Group, believes that accepting the exchange rate adjustment is unavoidable and exchange rate fluctuations are a regular risk companies have to face when doing business.
According to Duong, exchange rate adjustments occur every year. Since the company needs a large number of dollars, about $10-20 million a month, it cannot hoard dollars every time there are signs of fluctuations. Moreover, Duong said, the exchange rate fluctuations should be considered a kind of risk, like petrol or electricity price increases. “Businesses need to anticipate risks in order to be able to have a suitable business plan,” he said.
Do Van Trac, General Director of Cables and Telecommunication Materials Corporation (Sacom) said he now has to rack his brain to calculate the prices he will use for upcoming bids. “With the dong losing 2.1 percent of its value against the dollar, if we do not raise the prices, we will incur losses, but if we do not raise the prices, we may not win the bid,” he said. He added that competition is very fierce in his field, and a gap of just 0.1 percent in price would be enough to lose a bid.
As for the Son Ha International Joint Stock Company, the most important thing the company needs to do in the next few days is to listen to the news. Dang Minh Quang, Deputy Director of Son Ha, said that he needs to keep a close watch over the dong/dollar exchange rate over a period of time in order to have a suitable plan to pay bank loans in dollars.
According to Le Thanh Duong, General Director of Truong Son Company, if his company borrows one million dollars for six months with an interest rate of 6.5 percent per annum and at an exchange rate of 19,600 dong per dollar, a business will have to pay $32,500, or 637 million dong. The business will have to pay an additional sum of 500 million dong due to the dollar’s value increasing from 19,100 dong to 19,600 dong. As such, the sum of money the business has to pay for six months is 1,137 million dong. If the business borrows in Vietnam dong during the same time, it would have to pay 1,337 million dong for six months. So if the business borrows in dollars instead, the business can save 200 million dong.
However, Duong said, his business will have to think carefully before deciding whether to continue borrowing money in dollars. If the dollar price increases further to 19,800 dong per dollar, the sum of money it has to pay for dong and dollar loans will be the same. Meanwhile, if the dollar price surges to 19,900 dong per dollar, businesses will suffer losses if they borrow in dollars.
Even export companies, which, in principle, benefit the most from the exchange rate adjustment, do not feel happy about the adjustment. Their trading partners in Europe and the US are facing economic difficulties and are attempting to reduce imports. Many trading partners have requested that payment times be extended from 120 to 180 days.
Lam Ngoc Khuan, Director of Phuong Nam Seafood Export Company, said his company borrows money in dollars, so it does not have many dollars to sell to banks. “If we had dollars to sell, we would sell them at market prices. With the sales price, the company can make a modest profit of 50-60 dong per dollar,” he said.
Nguyen Thien Toan, General Director of Vietnam Tea Corporation, said that his corporation has only sold twelve million dollars to banks so far this year. The corporation still expects to have two million dollars more from European partners who are expected to pay in the near future.
Analysts say the decision by the State Bank of Vietnam has created favorable conditions for banks to collect more revenue from the collection of foreign currency and gold exports. Gold price increases have prompted people to sell gold, while banks are trying to collect gold.
Pham Quyet Thang, a senior banking expert, said the world’s gold price is now $1,235 per ounce, which is 220,000 dong higher per tael than the domestic price (The exchange rate is 19,540 dong per dollar). The gap between domestic and world prices allows banks to make a profit of 50,000 dong per tael after they pay different kinds of expenses.
After the dollar price increase was announced, ACB raised dollar deposit interest rates by 0.15-0.2 percent per annum for 1-9 month term deposits. The move is believed to help retain depositors, because banks fear that people will withdraw dollars from banks when they see the dollar price increase.
Vietnamnet, SGTT
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