SME hedg­ing scheme hatched


The gov­ern­ment looks set to sub­sidise for­eign ex­change hedg­ing fees for small-busi­ness op­er­a­tors with the aim of en­cour­ag­ing them to use the tool to pro­tect against for­eign cur­rency risks.

State agen­cies in­volved with small and medium-sized en­ter­prises (SMEs) are seek­ing ways to al­le­vi­ate the im­pact of the baht’s rapid gain on busi­ness op­er­a­tors, said Pisit Serewi­wat­tana, pres­i­dent of the Ex­port-Im­port Bank of Thai­land (Exim Thai­land).

If there is money left over from sub­si­dis­ing hedg­ing fees for smaller op­er­a­tors, it will be used to help mid-sized SMEs, Mr Pisit said.

The Fi­nance Min­istry is con­sid­er­ing the sub­sidy amount and a clear di­rec­tion be­fore for­ward­ing the pro­posal to the cabi­net for approval.

The baht is among the best-per­form­ing cur­ren­cies in Asia, up 7.7% against the US dol­lar this year. The rise is largely due to the US dol­lar’s weakness amid geopo­lit­i­cal ten­sions in the Korean Penin­sula, the fail­ure of US Pres­i­dent Don­ald Trump to de­liver on his do­mes­tic pol­icy prom­ises, and the ris­ing odds of the US Fed­eral Re­serve keep­ing its pol­icy rate un­changed through­out the year.

At the same time, Thai­land’s hefty for­eign re­serves and cur­rent ac­count sur­plus have made the coun­try a safe haven for off­shore fund flows.

Bank of Thai­land gov­er­nor Veerathai San­tiprab­hob said that to­gether with the cen­tral bank and gov­ern­ment agen­cies, Thai com­mer­cial banks will in­tro­duce a for­eign ex­change op­tion with lower fees specif­i­cally tar­get­ing Thai SMEs. The agen­cies in­clude the Of­fice of Small and Medium En­ter­prises Pro­mo­tion and Exim Thai­land.

Mr Pisit said half of the bank’s SME lend­ing is not hedged against for­eign ex­change risks, as these debtors hope to reap a wind­fall when the baht re­verses its firmer trend.

Exim Thai­land’s out­stand­ing loans amount to 80 bil­lion baht, of which 10% is se­cured by SME op­er­a­tors.

Most of the bank’s loans are for in­vest­ment, while those for ex­ports rep­re­sent 10% of to­tal loans, he said, adding that most of the ex­port loans are bor­rowed in non-US de­nom­i­na­tions, so these cus­tomers feel lit­tle im­pact from the dol­lar’s re­treat.

But the bank’s cus­tomers who do not hedge against for­eign ex­change risks are likely to strug­gle more be­cause they must ad­just their prices to get an edge over their ri­vals, Mr Pisit said.

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