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.