Tuesday, December 6, 2016

Not sure BNM doing the right thing

Saw the below news. It seems that BNM is controlling the exporters when it is the time that exporters are one of the most important arm in our economy. We need more companies to bring in foreign currencies. BNM has now imposed a rule that companies that bring in foreign dollars to convert 75% of them into RM.

Rubber gloves makers have consistent order due to their nature of business which is manufacturing. Hence, they are even lesser affected. There are definitely other businesses which involve foreign currencies which will be impacted as well or even more. This order will only allow banks to make more money at the expense of companies who are doing the trading.

I used to be in a business which involves selling in USD and hence bringing in USD and other currencies. It is definitely convenient to keep foreign currencies as we do not know when we will be using them rather than changing them into RM and later change them into USD when we need to pay them. Companies that keep USD gets much lower interest rates as US Dollar provides negligible interest, but it is due to business nature that one keeps the USD or any other currencies they trade in. BNM has to understand business more so that these guys are not affected and losing money due to the conversion. Businesses stand to lose between 3% to even as high as 10% (such as THB, IDR etc.) due to this.


Akagi Shigeru said...

Yeah I do agree to a certain degree. However, when come to confidence of RM, I do not think exporter would like to keep RM even though they know very well that do not need the USD in the coming say 12-18 months. I still view this move is the right direction to build some liquidity into the sytem, rather than keeping USD in the vault. Furthermore if they could always convert the USD into RM and deposit it the higher rate. I don't think the exporter would we at loss because of this rules, just making less. And if someone said they need USD for R&D and expansion, I do not think you need to keep more than 25% of the USD from the sale. If industry like rubber glove maker need to keep the USD for natural hedge, they could always apply for the exemption. Rule is the rule, I don't think this rule is too much. Less hope for the best

felicity said...

Let me give an example how dangerous to our country as a trading nation. Let's say Inari as an exporter sells its packaged chips to Broadcom (Avago). Inari is saying to Broadcom, since 50% of its costs i.e. ICs, wafers, etc. are in USD, it will have to bill Broadcom in USD. Other value adds which are in RM will be provided (open book to an extent) to Broadcom. Broadcom has to agree as it is a buyer of the packaged chips from Inari.

Now, with the imposition of the new rule, Inari has now felt that the ruling is too much hassle and detrimental to its profitabilty. It now has to convert the USD receipts - 75% - into RM and it does not need so much. Let's say that Inari sets up a trading arm in Singapore just to sell to Broadcom. Broadcom which sells its chips to Apple, Samsung etc. will have no objection as its ultimate customers are foreign companies anyway. Now all produced (manufactured) chips are sold through Singapore, and Inari will just pass through the costs + some profits to Malaysia. All things else will just be kept in Singapore.

We will be even less competitive against other countries, wouldn't we be? If this policy is being mooted and implemented, it just shows that we can do anything for the sake of short term defend but detrimental to our longer term development.

Akagi Shigeru said...

Agree. But if there is a option to deposit the the converted RM into a 3.25% rate account as reported ( If I am not mistaken ), it would be quite fair for the exporters to keep the cash on shore. Furthermore the hedging of USD is made more flexible with the new rule. I hope the industry will adopt to the new rules. Otherwise, if all the exporters keep holding all USD, it would squeeze the USD liquidity even more. The whole thing will spiral down even more. What if the whole thing turn into a crisis and hit the confidence level even more. But longer term, it shall let the market to decide the fate of RM. But it is rather hard since our economy scale is to small for a free market. Thank you for your though. Appreciate that.

felicity said...

The more I think, yes as a nation, we probably need some help at this moment. But cannot have this condition for too long - at the very least until things are back to normal. At this moment it is not normal.

股票王子 said...

Hi felicity, are you a professional investor? i have been reading your article recently and i found out your business sense is very good.... do you need a helper to do some of the research job? like apprentice? I think there is a lot of thing i can learn from you...

I started from 2014, 21 years old currently. Doing full time investor right now.

felicity said...

Sure. I can do with help. I as usual am looking at areas within my scope of knowledge and reading to learn more.

alex said...

I would like to provide our 2cents on how the new BNM ruling is affecting our business negatively. We are a SME and 100% focussed on exports. Over 95% of our purchases (commodities and ingredients) are denominated in USD and Euro. Our suppliers comprise of local and overseas companies. As we receive export proceeds in USD and Euro, we did not have to convert to MYR before this BNM ruling. We used the USD and Euro to pay our suppliers. This was a natural hedge for our business and we did not have to worry about currency exchange fluctuations. In a way this helped to keep our business costs low and we remain competitive. Trades were kept simple and straightforward.
Now with the new BNM ruling, it is not only a hassle to us, but it is also adding unnecessary costs. When we receive USD and Euro, 75% of proceed will be converted to MYR, while 25% is allowed to be retained in foreign currency. But 25% of the proceed in USD is not enough to pay our suppliers in USD and Euro, hence we will convert back, almost immediately, a big portion of the 75% proceeds in MYR back to USD because we have to pay our suppliers.
Now, tell me how does that help to shore up the demand for MYR and to strengthen the currency.
It felt like BNM just implemented this new ruling without giving much thoughts to the consequences. is it the best way to shore up the demand for MYR ? despite this new ruling, as of today, i only see that the MYR has strengthened only marginally versus USD. Against SGD and Euro, MYR remains at more or less the same position as before the announcement of the new ruling.

Since 5th December when the new ruling took effect, we have decided to form a Singapore company.
We will shift our business to Singapore come 1st January 2017.
We don't want any further surprises from BNM anymore. We just want a stable policy to do business.
How we wish Tan Sri Dato' Sri Dr. Zeti Akhtar Aziz was still at the helm of BNM. She really did a great job.

felicity said...

Hi Alex, This is what I would have thought. I can see it as I was in that position similar as yours. This is the time to encourage ourselves to do more exports. I just hope that they come out and be clear this is going to be a short term measure and put a timeline to it.

alex said...

even if this is a short term measure, which I am doubtful, will the companies that shift their business to Singapore come back when or if this ruling is removed ? How long was the ringgit peg ?