Navigating Monetary Volatility in 2025: Should Companies Guard Against Currency Risks?
Hedging Currency Risks in Belarus: A Game Changer for Businesses?
Currency risks are on the rise for Belarusian companies, and hedging strategies are becoming increasingly important to secure financial stability. With the exchange rates unpredictable, inflationary pressures, sanctions, and limited access to international financial tools, safeguarding against currency risks takes center stage for importers, exporters, and businesses.
To discuss the possibilities of hedging and protecting against potential currency shocks, we spoke with Alexei Smirnov, Head of Sales of Investment Products at LLC "Aigensis."
- How is the demand for hedging currency risks in the Belarusian market, given the interest in Russia?
Hedging currency risks is still in its infancy in Belarus, with limited access to specialized financial instruments. Although exchange trading is accessible, there's a lack of tailored solutions for hedging. The majority of hedging takes place through individual offerings by banks—forward deals and SWAP deals—restricted to a small circle of clients.
- Is the cost of hedging on the futures market directly linked to the current level of ruble interest rates, which are sky-high?
Indeed, the cost of hedging reflects the level of interest rates in the national currency. Currently, Russian ruble rates are quite high: the Central Bank of Russia's key rate is 21% annually (as of April 2025). Consequently, protection against currency risks tends to be expensive.
- Given the high cost, is it wise for importers to open hedging positions?
Volatility in exchange rates, inflation, and sanctions make hedging a critical measure to secure the budget and offset exchange rate fluctuations. Despite the expense, the protection provided by hedging outweighs the cost.
- Can you advise on reducing the expenses involved when depositing funds for futures market trading?
We accept high-liquidity assets, primarily cash, as collateral. Alternatively, we can use government bonds that offer attractive yields, such as OFZ-PD 26234 with maturity in July 2025, which yields around 20.77% annually.
- Compared to bank forward contracts, do exchange-traded instruments prove more advantageous when it comes to the cost of hedging?
- This depends on market conditions and bank contract terms. However, earning interest on collateral can help reduce the overall cost of hedging, often rendering exchange-traded instruments attractive.
- When considering short-term placement, how do exchange-traded instruments differ from bank overnight deposits?
Bank overnight deposits and exchange-traded instruments can work in tandem to manage a company's liquidity efficiently. Overnight deposits ensure short-term placement with minimal risk, but their yields usually fall short of more market-oriented alternatives. Exchange-traded instruments, such as bonds, offer flexible term placement options and higher yields, ranging from 12.5% to 21% annually, depending on the investment term.
- What are the advantages of using exchange repo with a central counterparty?
Exchange repo with a central counterparty simplifies the process by acting as a guarantee for contract fulfillment, eliminating the need for two separate transactions and their corresponding participants. This tool can be compared to bank overnight but trades on the exchange, providing more convenience and potentially lower yields of 1-2 percentage points below the key rate.
- For larger companies with substantial account balances, is it still more lucrative to go with bank overnight deposits?
For shorter terms (up to a week), bank overnight may remain more profitable due to additional expenses involved in exchange transactions, including brokerage commissions and clearing fees.
- Regarding longer-term liquidity, what exchange-traded instruments would you suggest?
As a broker, we don't offer individual investment advice, but we can share which instruments are popular among our clients, such as Belarus Ministry of Finance bonds (VGDOs) and corporate bonds issued by entities like "Aigensis," "Activlizing," and "AVANGARD LIZING." These securities offer competitive yields and flexible options for selecting placement terms and interest payment conditions.
- Is it possible to repo bonds for quick access to funds?
Not all bonds are suitable for repo transactions. Typically, these transactions involve the most liquid securities, like Ministry of Finance bonds (VGDOs).
- Do you offer a liquidity support option like margin lending?
Yes, we provide margin lending services upon individual agreement regarding terms, such as collateral parameters, limits, and acceptable risk levels. Although margin lending in Belarus hasn't gained traction yet, if there's interest, we're ready to discuss terms and find a suitable solution, taking into account economic feasibility.
In conclusion, the Belarusian market faces challenges in the face of economic sanctions, integration with Russia, and a depreciating currency. Though the financial sector remains stable overall, businesses continue to search for ways to manage potential currency risks. By understanding the various tools and strategies available, Belarusian companies can take decisive action to secure their financial futures.
- Variants like margin lending agreements are potential options that LLC "Aigensis" might consider to address the growing demands for financial stability amidst the Belarusian market's challenges, taking into account economic feasibility.
- As an alternative to bank overnight deposits, exchange-traded instruments, such as bonds offered by the Belarus Ministry of Finance and entities like "Aigensis," "Activlizing," and "AVANGARD LIZING," provide flexible term placement options and higher yields, making them attractive for managing a company's liquidity efficiently.
- The high cost of hedging currency risks in the Belarusian market is a significant concern, but securing the budget through hedging measures proves vital to offsetting exchange rate fluctuations, inflation, and sanctions.
- When it comes to the cost of hedging, exchange-traded instruments, like those offered on the futures market, may offer an advantage versus bank forward contracts, especially when factoring in the potential earning of interest on collateral.
