VietNamNet Bridge – For many reasons, 70 percent of enterprises refuse to apply the measures that allow to protect them from the exchange rate fluctuations.

The foreign currency market is witnessing the highest dollar price increase so far this year. Just within the last 15 days, the State Bank of Vietnam adjusted the interbank exchange rate 10 times, which has made the dong lose 0.53 percent of its value, or the dollar price has increased by 110 dong per dollar. Meanwhile, the gap between the official exchange rate and the black market’s rate has been widened to 700 dong per dollar.

In such circumstances, those, who borrowed dollars before, would suffer big losses. However, they cannot do anything but accepting the loss, because they did not apply any measures to protect themselves from the exchange rate fluctuations.

70 percent of businesses refuse exchange rate insurance

“The market remains unchanged over the last five years,” said Pham Hong Hai, Monetary and Capital Market Director of HSBC Vietnam when talking about the domestic derivatives market.

Hai said that over the last three years, since the interest rates market and the dong/dollar exchange rate have been fluctuating heavily, the number of businesses which take exchange rate insurance policy has increased by 300-400 percent in comparison with the beginning of the year. However, the exact number of enterprises remains very modest.

According to him, up to 60-70 percent of enterprises which have the operation activities relating to international payment, don’t do anything to protect themselves from the exchange rate fluctuations. In most of cases, they accept to buy foreign currencies at the market prices at the moments of making payment.

Meanwhile, 20 percent of businesses make decision on whether to take insurance policy depending on the market situations. Especially, they only take insurance policies for the nearest debt payment period, while they would think and make decision later about the next debt payment periods.

The other 10 percent of businesses are the foreign companies whose the risk prevention is always a part of their business strategy.

At present, currency swap remains the most popular derivative product used by businesses. Meanwhile, option service has been prohibited for the last two or three years, and IRS has also been stopped.

In the past, in general, banks referred to Vni-bor, the average interest rate of 12 commercial banks, to define their interest rates. However, in the last three years, banks have to obey the regulation that the interest rates applied by the banks must not be higher than 150 percent of the ceiling interest rate stipulated by the State Bank of Vietnam. Especially, the deposit interest rates reported by commercial banks to the central bank all are the single rate of 14 percent, even though in fact, they offer higher interest rates.

As a result, the market does not have a real interest rate for reference,, and IRS has been ignored.

Why businesses turn their back to protective measures?

The main job of businesses is not trading money and interest rate, but they still “bet” on the exchange rate – this is exactly what most of businesses think, according to Huynh Buu Quang, a senior executive of HSBC.

He said that in the past, the State Bank followed a policy which strictly controlled the exchange rate, which could be seen as a kind of “subsidization.” Therefore, businesses did not feel the necessity of taking measures to prevent from the exchange rate fluctuations. The habit has been kept by businesses until nowadays.

“In general, I failed to persuade businesses to take insurance policies at the first time when I met them. After that, they incurred loss due to the price increases. However, they were still determined not to take insurance policies. And they only decided to take insurance policies after three times of incurring loss,” Hai said.

Source: SGTT