Exchange rate on US dollar damages Vietnam’s profits

Enterprises lose from VND1.2 billion to VND1.3 billion to get USD1 million from banks.

Domestic businesses are not allowed to use USD bought in the free market for their payments, therefore, they have to buy USD at high prices to sell it to banks at prices no higher than VND19,500/USD. After that, they sign contracts to buy USD back from these banks to legalise the origin of USD.

However, this means enterprises have to pay fees for two stages of transactions. Therefore, prices of USD are also equal to those at the free market. As a result, they have to suffer from losses for the two transaction stages.

Enterprises lose from VND1.2 billion (USD60,000) to VND1.3 billion (USD65,000) to get USD1 million from the banks.

Many companies in Haiphong City have made big losses due to the recent exchange rate rise, even up to millions of USD for large-scaled transactions.

Pham Van Minh, who is charge of purchasing activities at LS-Vina Cable in Haiphong City, complained that his firm always has orders for three months. Therefore, it has to spend between USD18 million and USD20 million per month to import materials, including copper, aluminium and plastic.

LS-Vina imports materials in USD, but earns revenues in VND from domestic sales. Thus, when the USD appreciates, LS-Vina must pay more VND to purchase the same amount of dollars which are used for importing materials. However, domestic sales contracts are signed under VND, as a result, stronger USD will lead to losses for enterprises.

“Up to 70% of LS-Vina’s domestic sales contracts, totaling between USD40 million and USD50 million, are paid in VND. Hence, when the exchange rate increases by 2%, the company will lose nearly USD1 million,” according to Minh.

The cable firm has incurred a total loss of USD4 million this year after two increases in exchange rates.

LS-Vina is not the only victim of the exchange rate changes. Bui Viet Hoai, General Director of Vietnam Ocean Shipping Joint Stock Company (VOSCO), said his company has invested hundreds of millions of USD to expand operations. Most of this capital is loans from foreign countries.

“Due to the exchange rate factor, Vosco lost VND95 billion (USD4.75 million) last year, and the figure is forecast to reach VND100 billion (USD5 million) this year,” Hoa added.

To mitigate the losses related to the exchange rate, Mr. Minh said: “LS-Vina has tried to buy materials imported by domestic partners with payment in VND.” However, he added that this is just a temporary solution because materials are all imports, but they were those imported before the USD appreciates.

LS-Vina has also boosted exports and sometimes only breaks even on sales to meet 30% of its USD demand. They have also considered raising product prices in line with the market price changes.

However, not all firms can do as LS-Vina because it is not easy to ensure sales to get USD. If the exchange rate is not stable, more firms will face losses.