PETALING JAYA: Foreign exchange (forex) trading and operations have surfaced as a more substantial source of earnings for banks following volatile currency movements.
Stocks, Bonds & Forex Trading
Source: biz.thestar.com.my Friday February 13, 2009

In the current reporting season, two banks – Public Bank Bhd and Hong Leong Bank Bhd – have announced their latest quarterly earnings, and both showed significant increases in forex gains.

Hong Leong Bank, which unveiled its results on Tuesday, disclosed forex gains of RM68mil for its second quarter ended Dec 31, accounting for 20% of its pre-tax profit during that period. That was an increase in forex gains of RM39mil from the corresponding quarter last year.

Jupiter Securities Sdn Bhd research head Pong Teng Siew said banks tended to “make some money” when currencies were volatile because corporates would take on more hedging to protect their trading positions.

The banks would also take some currency positions themselves with measures in place to limit the trading risks, he told StarBiz.

“I would expect all banks to register some boost from forex profits, especially those with a large treasury desk. Some of the favourite currencies are the US dollar-ringgit combination as well as Singapore dollar and euro,” he said, adding that trades were limited to major currencies.

He said companies, particularly those involved in trading, would now adopt a bigger hedging position to protect their investments. “At least they would know at what level their transactions would be,” Pong said.

Nonetheless, forex gains are unlikely to be sustainable for banks since they are subject to currency volatility. “Once the volatility subsides, the gains will also become lesser,” he added.

A banking analyst at a research house had similar views. “A lot of companies are playing hedging right now and that would add on to the banks’ fees,” she said.

She said the forex gains might last for another quarter but “it also depends on what happens during the book closing.”

A forex trader at a local bank said the market was volatile due to many factors, such as the various economic stimulus packages being implemented currently as well as the easing of monetary policies.

“For exporters and importers, it is important to hedge forward their receipts and payments to mitigate exchange risks,” he said.