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High prices make businesses say “no” to financial derivatives
Using financial derivatives is a way businesses prevent the risks caused by exchange rate fluctuations. However, it is a surprise that only few businesses have been using this tool, while the majority sit idle and watch the exchange rate fluctuations “blowing off” their profits.
Sky high prices keep businesses away
Le Phuc Dai, General Director of Vinagas, said that because the exchange rate is fluctuating he cannot calculate how much he will have to pay for imports and thus how he should set the sale prices.
Dai said that currently gas trading companies are turning to domestic sources to avoid the difficulties with the exchange rate. However, recently, suppliers, though calculating sale prices in Vietnam dong, have been setting prices based on the dollar. Therefore, the floating prices have made the companies like Vinagas worried.
“Our trade partners now try to divert the exchange rate risks to us, but Vinagas doesn’t know how to cope with it,” Dai said.
Pham Duc Binh, General Director of Thanh Binh Company, said that if he couldn’t purchase dollars to pay for imports, he would have to borrow from bankspurchase dollars later to pay the debts.
Though every month Binh has to move heaven and earth to purchase dollars, he does not intend to use any financial derivatives such as forward, option or future contracts.
Binh said that he had used them in the past but they did not bring the desired effects. According to Binh, the dollar always keeps the upward trend, meanwhile, the derivatives would be only useful if prices went both up and down.
Previously, businesses hesitated to use derivatives because they did not have the necessary knowledge But the main reason now is the overly high prices. “Banks set prices that makes the contracts them unaffordable,” he said.
Do Duy Thai, General Director of Viet Steel, agreed that the prices set for forward contracts are very high. Every month, Viet Steel needs some $35 million for imports, but it can only arrange eight percent of the foreign currencies it needs, which comes from the exports to Cambodia and Arab Saudi. Thai said that several years ago, Viet Steel tried to purchase dollars under forward contracts, but this did not help, because the fees were as high as the provisioning.
Thai said that the prices were higher than the profits his company could earn. Therefore, he still purchases dollars from banks at negotiable prices at different times.
It would be to borrow dollars?
Meanwhile, Deputy General Director of a joint stock bank has admitted that there will the cost of forward contracts will remain high as long as the dollar is strong in Vietnam. He said that his bank was also providing derivatives, but could only make profit if it sets high fee. “It is not easy to provide derivatives,” he said.
The finance reports of some banks showed that they incurred losses from the foreign currency trading. Sacombank incurred the loss of 274.119 billion dong in the fourth quarter of 2010, and 31.219 billion dong in 2010 (In 2009 it made a profit of 314 billion dong). Meanwhile, the profit made by Vietcombank in 2010 was 550 billion dong, a 40 percent decrease in comparison with the previous year. Eximbank reportedly incurred the loss of $64.86 billion dong.
Bankers said that very few enterprises that used derivatives, therefore, the services are not profitable to banks.
While banks still have not found effective tools to protect themselves from the exchange rate risks, businesses have to look for many solutions on their own. Many businesses now have to borrow dollars instead of dong which they will use to pay for imports. The businesses believe that the dollar is not likely to go up further in the next six months, therefore, they would rather borrow than purchasing dollars under forward contracts at high prices.
vietnamnet
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