Foreign investors who have invested in government bonds issued in Vietnam dong could execute foreign exchange forward transactions with licensed credit institutions to hedge exchange rate risks, according to a draft circular recently released by the State Bank of Vietnam (SBV).
Under the draft which would replace Circular 15 issued by the SBV in 2015, regulations on the minimum term of a foreign exchange swap transaction would be abolished. Instead, credit institutions would be allowed to carry out swap transactions with a term of less than three working days to meet liquidity and capital management needs. However, credit institutions would no longer be permitted to conduct foreign currency option transactions with residents being other organizations and individuals.
In order to avoid exchange rate risks, the SBV proposes that credit institutions and their clients could conduct forward transactions for medium- or long-term foreign loans in foreign currencies with a term or a remaining term of more than one year. Credit institutions would also be allowed to conduct swap transactions to modify terms of signed transaction contracts based on their clients’ requests and papers proving objective reasons for modification.
Worthy of note, the SBV proposes permitting credit institutions to conduct forward selling transactions with foreign investors owning government bonds and meeting conditions on purposes of transactions and bond blockade. When a forward transaction matures, clients could conduct swap transactions to extend the term of the transactions to hedge risks for bonds. The total term of a forward transaction and its swap transactions must not exceed the term of the blocked bond.- (VLLF)
