Vietnamese businesses grapple with surging exchange rates

Currency volatility is rippling through the stock market, shaping the investment landscape, as the VND's surge against the US dollar draws heightened scrutiny in financial circles. The upward trajectory has seen the dollar breach the VND 25,000 mark at some banks, testing the regulatory limits.

Addressing the currency's swift ascent, Deputy Governor Dao Minh Tu of the State Bank of Vietnam provided assurances during an April 3 press conference, stating, "With a war chest of over $100 billion in foreign exchange reserves, we are poised to stabilise the exchange rate as needed."

In the equity markets, this exchange rate turbulence has not gone unnoticed by investors, with direct implications for businesses, particularly for those with import operations or USD-denominated obligations.

"While a stronger dollar generally favours exporters who earn in USD, it presents a double-edged sword, especially for firms heavily reliant on imports or paying in dollars," BSC Securities noted in its sectoral impact analysis.

For the textile industry, BSC points out that despite relying on US markets, the exchange rate uptick's overall effect on operational performance is muted, as the cost implications are somewhat balanced by the industry's need to import specified raw materials.

Steel producers like HPG face headwinds, with only a fifth of their output destined for export and a substantial 70 per cent of their inputs being imported. On the flip side, HSG and NKG, with substantial exports and diversified raw material sources, might capitalise on a rising exchange rate. However, a slowdown in exports since March 2022 underscores the broader market demand challenges.

In technology, FPT appears insulated from currency swings, with the rising USD/VND exchange rate expected to offset the falling JPY/VND.

"The firm's US revenue streams adequately cover its Dollar-denominated debts, mitigating any significant financial impact," FPT commented on its earnings resilience.

Energy company PetroVietnam Power Nhon Trach 2 JSC faces higher production costs as input gas prices are pegged to the dollar, potentially dampening its competitive edge.

Meanwhile, Binh Duong Water - Enviroment Corporation JSC's regulated water pricing constrains its ability to pass on increased costs from USD loans, although it uses financial instruments to hedge against exchange rate exposure.

Amid these dynamics, Vietnam Airlines disclosed at a March policy conference that a one per cent exchange rate shift could lead to a 300 billion VND hit to its finances, and a 5 per cent move could elevate annual costs by VND1.5 trillion.

"Significant exchange rate shifts pose a direct threat to our bottom line, given our high exposure to USD-denominated financial obligations," said Vietnam Airlines' chairman Dang Ngoc Hoa

As of December 31, 2023, Vietnam Airlines reported financial debts in foreign currency of nearly $419 million, a decrease from $543 million at the year's start, reflecting the ongoing management of its currency risk.

Comparatively, Vietjet ended 2023 with a sizable foreign currency debt of $153.3 million but recorded a gain from exchange rate differentials, a stark contrast to the previous year's losses.

Also on the radar is Vietnam's oil and gas group PetroVietnam, with chairman Le Manh Hung reporting early in the year a foreign currency debt equivalent to $1.55 billion, highlighting the pervasive reach of currency fluctuations across various sectors.

Lowering interest rates poses challenges ahead Savers are increasingly concerned about the prospect of lower deposit interest rates. Economic expert Le Xuan Nghia talked to VIR’s Hong Dung about the challenges of reducing such rates in the near future due to uncertainties in adhering to positive principles.

Businesses face mounting hardships amid rate hike A US Federal Reserve policy meeting is taking place this week on March 20 with the Fed forecast to retain the current base rate to deal with inflation concerns. The move will mean the US dollar remains at a high level, putting pressure on domestic currencies around the world.