Stable cash flow helps enterprises in production and business activities. Photo: H.Diu

Stabilizing cash flow

Many banks have launched preferential credit packages for enterprises. In particular, many enterprises that need capital to pay for imports and exports are entitled to a preferential interest rate of only 7.5% per year. The cause of this move comes not only from the call of the Government, the State Bank of Vietnam (SBV), and the business community but also from the efforts on reducing input deposit interest rates.

Currently, the deposit interest rate has decreased by 1-2% per year compared to the peak at the end of last year, helping output interest rates to “breathe easier”.

Another reason is that the VND is kept more stable. Accordingly, the low volatility of the domestic exchange rate is creating a great impact on the cash flow of enterprises, especially import-export ones. Since the end of last year, the exchange rate between VND and USD has been relatively stable and the abundant supply helps the SBV buy a large amount of foreign currency of up to US$ 3.5 billion.

According to data from the General Department of Customs, after having a trade surplus of US$ 12.4 billion in 2022, by the end of January 2023, Vietnam continued to have a trade surplus of US$ 0.66 billion in goods, until February 15, 2023 it still has a surplus of US$ 1.07 billion.

As a result, from the beginning of the year to the end of February 15, 2023, the trade balance of goods had a surplus of US$ 1.68 billion. This is a positive signal that the trade surplus is maintained.

With foreign direct investment (FDI), disbursed FDI inflows in January were estimated at US$ 1.35 billion. On the stock market, foreign investors have continuously been strong net buyers since November 2022. Moreover, the volume of remittances pouring into Vietnam from the end of 2022 up to now is also one of the important factors to help the abundant foreign currency supply.

Therefore, a report of VNDirect Securities Company forecasts that Vietnam's foreign exchange reserves would likely reach US$ 102 billion by the end of 2023, equivalent to 3.3 months of import value.

According to a representative of Big Phone Vietnam Co., Ltd - an enterprise operating in the field of importing electrical and electronic equipment, the stabilization of the foreign currency exchange rate had a very positive impact on enterprises because with sales of tens of millions of US dollars, the exchange rate only changed about 1% caused the company's profit to affect billions of dong.

Therefore, the stable exchange rate helps to reduce the worries of enterprises.

Not be subjective

According to a report by Agribank Securities Company (Agriseco), an increase in the exchange rate could significantly increase the costs of enterprises that imported raw materials, especially those with a high proportion of US dollar debt in total assets. Because mobilizing US dollar loans with a large proportion could cause enterprises to suffer exchange rate losses, thereby increasing financial costs and reducing profit after tax.

The financial statements of the fourth quarter and the whole year of 2022 as well as the explanation of profit fluctuations of many enterprises showed that high exchange rate losses had strongly affected the overall profit of enterprises. For example, in steel enterprises, the net loss of exchange rate difference with VND 2,264 billion in 2022 was also one of the reasons for Hoa Phat Group's (HPG) profit after tax to fall sharply by 76% compared to the previous year, with VND 8,444 billion.

Since the beginning of the year, the exchange rate in Vietnam has had many advantages, but we cannot be subjective with the complicated external context.

From the beginning of February 2023, the US Federal Reserve (FED) decided to raise interest rates by 0.25 percentage points, to 4.5-4.75% as forecast. This makes the US Dollar Index (DXY) measuring the US dollar with 6 major currencies (EUR, JPY, GBP, CAD, SEK, CHF) around 105 points, up more than 3% from the beginning of the month to now.

It is forecast that this index would soon reach 106 points because the newly released information on the Consumer Price Index (CPI), US Personal Consumption Expenditure (PCE) data is supporting this currency. With this development, in the last week of February, the exchange rate on the domestic free market increased by 120 dong on the buying side and 90 dong on the selling side compared to the previous week, but the exchange rate at banks did not change much.

According to experts, the USD/VND exchange rate is expected to increase due to external factors such as the global economic recession, decreasing aggregate demand, decreasing export turnover and increasing political instability.

In addition, the pressure of devaluation of the dong also comes from the escalation of external commodity prices, along with the effects of increasing interest rates. According to experts at VNDirect, the devaluation pressure of the VND would decrease significantly from the second quarter of 2023 and the VND might increase 1-2% against the US dollar in 2023 due to the FED’s shift from the “tightening” monetary policy to “normalization” policy next year.

With such fluctuations, according to experts, enterprises that want to limit  exchange rate risk should participate in the market of foreign currency futures or participate in the derivatives market to protect cash flow. In addition, banks also offer many exchange rate hedging solutions for import and export enterprises.