Banks still make real profits from forex trading

27-Oct-2021 Intellasia | Dau tu Online | 5:02 AM Print This Post

The decline of the US dollar/dong exchange rate caused the profit from foreign exchange (forex) trading of banks to go down, some banks even suffered losses in the third quarter (Q3) of 2021. However, in fact, the forex segment is still helping banks make big profits.

The financial statement in Q3/2021 of many banks showed that most of them recorded losses or decrease in net profits in this field.

Specifically, in Q3/2021, the net profit from forex trading of Southeast Asia Commercial Joint Stock Bank (SeABank) was only 15.6 billion dong, down by 60 percent year-on-year, mainly due to the loss in the financial derivatives activities. Similarly, in this quarter, the forex trading segment of Tien Phong Commercial Joint Stock Bank (TPBank) recorded a loss of 44.6 billion dong from currency derivatives business.

Many banks also announced a reduction in net profit from forex trading in Q3/2021, such as Viet A Commercial Joint Stock Bank (VietABank, decrease of 18%), National Citizen Commercial Joint Stock Bank (NCB, a loss of 863 million dong, while it was a profit of 564 million dong in the same period of 2020). In Q3/2021, Orient Commercial Joint Stock Bank (OCB) saw a decline of 71.5 percent in net profit from forex trading business, while this decline in An Binh Commercial Joint Stock Bank (ABBank) was 70%.

The depreciation of the US dollar/dong exchange rate in Q3/2021 is considered the cause of banks’ losses in forex trading. Talking to reporter of Bao Dau tu, Le Quang Trung, deputy general director of Vietnam International Commercial Joint Stock Bank (VIB), said that the exchange rate has gradually become stable following the direction of the State Bank of Vietnam (SBV), and that has made banks’ forex trading to plummet.

According to experts, the most common forex business used by banks is currently FX Swap (the transactions of buying and selling the same amount of foreign currently, in which the payment terms of the two transactions are different and the exchange rates of the two transactions are determined simultaneously at the time of signing the transaction contract). From the beginning of the year until now, the US dollar/dong exchange rate has fallen by about 1.5%. Accordingly, most banks doing FX Swap business suffered losses. It is estimated that the scale of this operation in Vietnamese credit institutions (CIs) is about two billion US dollars.

Although in the financial statements, the forex trading of many banks is losing and decreasing, leaders of many banks analysed that the net profit from forex trading segment of banks is still very huge but accounted in two different operations: loss in forex trading business but big gain in lending business.

Currently, most banks use Swap to convert US dollars into dong then use that amount of dong to lend to businesses. Thus, although banks may lose in forex trading, they still record net profit from the source of foreign currencies.

In fact, as the profit from lending activities is always much higher than the decline in the US dollar/dong foreign exchange, the net profit of banks from forex trading is still very big. “The forex trading and lending activities are accounted in two different ways, so when looking at the financial statements, it can be seen that some banks lost from forex trading business but the business in fact still brought huge profits to banks,” said Trung.

Ngo Dang Khoa, director of foreign exchange and capital markets at HSBC Vietnam, said that from the beginning of the year until now, the dong has appreciated by nearly 1.5 percent (the US dollar/dong exchange rate declined), after the SBV has continuously lowered the buying rate of US dollar since June 2021. This trend is said to against the previous years when the dong often depreciated against the US dollar. The level of reduction so far is considered to be larger and earlier than expected, continuing to demonstrate the flexible and proactive exchange rate management policy of the SBV.

HSBC’s global research unit forecast that the exchange rate will continue to fall in Q4/2021, but will increase again in 2022. Nevertheless, according to analysts of Saigon Securities Incorporation (SSI), the reverse of the trade balance in September to trade surplus and the government’s gradual opening of the economy will improve the trade balance in the end of the year. In addition, the good growth prospect of remittances will help the US dollar/dong exchange rate maintain a stable state.

In general, the exchange rate is forecast to remain stable in the near future, which will not support banks much in making profits from the difference in exchange rate fluctuations. Thus, as analysed, Swap business still helps banks make huge profits from the mobilised foreign currencies. In addition, the exchange rate stability will also create a stable macroeconomic environment, creating favourable conditions for banks to operate efficiently.


Category: Finance, Vietnam

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