Businesses suffering from forex rate volatility
Prior to the end of 2008 fiscal year, the board of director of DIC Investment and Trading Joint Stock Co (coded DIC) expected a satisfactory business result for the whole year. But before the company could finalise the balance sheet, the US dollar/dong forex rate was hiked by the State Bank of Vietnam. Thus, DIC had to recalculate business results based on the forex rate of 17,500 dong per US dollar instead of 16,500 dong/US dollar whereby the firm’s forex rate standby fund increased by extra five billion dong.
Till date DIC has not yet released 2008 business performance.
Other enterprises operating in the fields of export like DIC also had to face forex rate problems in 2008. Additionally, a sharp rise in input material prices due to the US dollar appreciation against the dong has pushed up the companies’ financial cost.
According to Bao Viet Securities Co, the dong/US dollar forex rate will continue to rise this year under SBV’s monitoring. Banks’ solutions in dealing with bad debts will contribute to the weakening of the dong.
The broker forecasted that the forex rate by the year end could increase by 5-7% from the current level of 17,500 dong/US dollar to 18,500-19,000 dong/US dollar.
Giving analysis on the forex rate, Bidv predicted that if the GDP growth is between 6 and 6.5%, the forex rate by 2009 end will stand at 17,600-17,800 dong/US dollar. And VNDirect Securities Co said that if GDP growth is about 5% and trade deficit widens to US$19 billion, the year end’s forex rate will be 18,000-18,200 dong per US dollar. In line with the worse scenario, if GDP grows by below 4% and trade deficit balloons to US$20 billion (with the export turnover estimated at US$43.9 billion), the forex rate could be 18,300-18,500 dong/US dollar.
The institutions had forecasted that the forex rate would increase in 2009.
A steel maker’s director claimed that his firm’s financial cost surged considerably due to the rising forex rate because it has to import steel billets for manufacturing. In 2009, if the price of finished steel in the domestic market does not go up, its input costs will go up further.
With the lending rate of 6.5% pa (or 0.55% a month) according to the government’s stimulus package, enterprises especially exports can balance ownership capital to borrow working capital from banks instead of selling foreign currencies. If three months later, if the forex rate increases by over 0.55%, the enterprises can earn a forex rate difference thanks to the US dollar in their kitty.
Category: Finance
