In the first half of 2020, the USD/VND exchange rate was almost completely quiet. As with other channels, the lack of signal often limited the magnitude of profitability or risk. Nevertheless, it was the stillness of the USD/VND exchange rate in the first half of this year, as well as the stability in 2019, which created an environment for commercial banks to open the door to generate revenue. This chance called ‘Foreign Exchange Trading’ that was strongly supported by the abundant foreign currency supply last year and the first half of this year, leading directly to the structure of non-credit income. The wider the door opening, the larger the volume of passage, the more valuable it was to create a sustainable revenue structure instead of the potential for bad debt risks such as credit income.
First of all, the volume, demand and size of foreign exchange transactions of the economy were expanding. For example, the total import-export turnover of Vietnam about five years ago was about $300 billion to $330 billion, so far, the target had been aiming at $500 billion and more. Alternatively, at foreign currency surplus of the economy, the record of national foreign exchange reserves continuously surpassed $50 billion, $60 billion, $70 billion, $80 billion in recent years. This scale meant the amount of resale, transactions through commercial banks and the balance to the State Bank of Vietnam (SBV).
More specifically, the financial statements of commercial banks also showed clearly. As at Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), or Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), the members holding the market share of international payment, as well as having the leading foreign currency sales in the system, recorded the remarkable increase in volume in recent periods. As in 2019, Vietcombank’s net foreign exchange income increased to 49.2%; which of BIDV also increased by 44%. In the first half of 2020, this speed continued to show at a double-digit level.
As above, income from foreign currency trading was growing strongly in the context of a stable exchange rate and few waves. The stability of the USD/VND exchange rate had created a favourable environment.
These days, when the US dollar in the international market decreased by 7 percent to 8 percent only about a month ago, the USD/VND exchange rate also tended to decrease (in the direction of the dong appreciating). However, there was a bottleneck that with the price listed by the SBV exchange, the exchange rate was difficult to penetrate. In that trend, quality revenue through the door mentioned above widened.
Firstly, before the downward trend of the USD/VND exchange rate, commercial banks often withdrew the buying price deeply into US dollar as minimising the risk of falling prices. This reaction was evident in many previous exchange rate plummets, which were timely. However, in the very stable context from 2019 to then, the deepening of the purchase price in US dollar created a revenue quality. Specifically, in the past decades, when the market was stable, the difference between the buying price and selling US dollar of commercial banks was only about 70 dong to 80 dong, creating a net interest income.
Nevertheless, over the past year, the gap had started to widen. At this time last year, the US dollar spreads of commercial banks were generally around 100 dong to 120 dong (depending on cash transactions or bank transfers). However, currently, this door had expanded to 170 dong to 220 dong in many members.
The level of change meant that the difference in foreign currency trading could double compared to previous years, making an important contribution to the profit of commercial banks. Of course, the spread varied with market fluctuations and exchange rates. Still, basically in 2019 until the first half of this year, the spread was widened and remained fairly stable. Alternatively, the difference was lower if sold to SBV, though it was still much higher than the previous period.
In net profits from foreign exchange trading, there were other components. Banks could gain or loss when holding or deviating wave on the interbank, through derivative operations at times of volatility. However, buying and selling foreign currencies with the fact that the above differences were remarkable points in the profits of the banks then and after 2019 was successful. In the first half of this year, many commercial banks continued to report big profits in this item with such wide selling and buying price difference.
