Exporters now allowed to automatically sweep export proceeds into their trade foreign currency accounts

By NG MIN SHEN / Graphic By TMR

The ringgit remains resilient despite heightened worries of a contagion effect spreading across emerging markets (EMs) due to the Turkish lira’s plunge.

Bank Negara Malaysia (BNM) governor Datuk Nor Shamsiah Mohd Yunus said while the local unit has depreciated 0.9% against the US dollar this year, the decline has been mainly driven by external factors.

“These include expectations for a faster pace of US interest rate normalisation, further escalation in global trade tensions and Turkish developments,” she told a media briefing on the second-quarter economic results in Kuala Lumpur last Friday.

In comparison to regional currencies, the ringgit — which has tumbled to the lowest against the greenback since December 2017 — appeared to be more resilient, having depreciated the least compared to its counterparts.

The Thai baht has dropped 1.8% against the greenback, followed by the Singapore dollar, Taiwan dollar, Korean won and China’s yuan at -2.8%, -3.7%, -5.2% and -5.5% respectively.

Meanwhile, third from the bottom was the Philippine peso at -6.4% against the US dollar and the Indonesian rupiah -7.2%. The Indian rupee posted the largest depreciation of 8.8%.

“As the ringgit continues to be market-determined, BNM will continue to ensure that financial markets are orderly and liquidity in the system is sufficient to support the currency,” Nor Shamsiah said.

Turkey’s currency, which recently registered its biggest weekly loss in over 17 years, has plunged as much as 28.6% against the greenback this month, mainly on a continued stand-off between its president and the US, as well as Turkey’s economic woes.

Following the lira’s nosedive, fear of contagion has risen, particularly roiling EMs including Malaysia as these countries are now facing pressure from all fronts, including fiscal imbalances and US- China trade tensions.

In terms of external debt, Malaysia’s exposure to Turkey appears to be no cause for concern, as the country’s corporate debt exposure to Turkey accounts for about 0.17% of total corporate external debt, Nor Shamsiah said.

Exposure to Turkish lira- denominated borrowings is even smaller at 0.03% of total corporate external debt, she added.

Malaysia’s overall external debt remains manageable, with limited rollover risk as more than half is skewed towards medium-to long-term tenures.

“There is no immediate threat from the level of external debt,” Nor Shamsiah said.

Banks, which account for 69.3% of short-term external debt, also have sufficient external assets to draw upon to meet their obligations without creating a claim on government reserves.

BNM has also implemented changes in the foreign-exchange administration policies, which take effect immediately, aimed at facilitating operational efficiencies and risk management by businesses and financial institutions.

Exporters will now be allowed to automatically sweep export proceeds into their trade foreign currency accounts, maintained with onshore banks, to meet up to six months’ foreign currency obligations without the need to first convert the proceeds into ringgit.

The flexibility is available upon exporters establishing their six months’ foreign currency obligations with their respective onshore banks.

“Under the old regime, exporters had to convert their proceeds to ringgit first. Then, if they had obligations to pay in foreign currency, they would have to re-convert the proceeds into foreign currency.

“If this is done on a daily basis, it adds to the cost of corporates, so we’re trying to remove that friction to give them greater efficiency,” Nor Shamsiah said.

Greater flexibility is also provided upon application to the central bank for residents, for the hedging of foreign currency obligations beyond six months, as well as the hedging of foreign currency exposures arising from invoices issued in foreign currency under international pricing practices for domestic trade in goods and services.

Further, wider access is given for non-residents to the onshore financial market. Non-resident corporations are now allowed to trade in ringgit- denominated interest rate derivatives via the appointed overseas offices, subject to back-to-back arrangements with onshore markets.

“This aims to further deepen the onshore market for interest rate derivatives to support risk management by businesses,” Nor Shamsiah said.

On outflows, she said these were due mostly to external factors, including expectations of a faster pace of normalisation in US monetary policy, and trade tensions, and recently because of the contagion from the development in Turkish lira.