The Impact of a Weaker Dong on Corporate Profits
Sharp fluctuations in exchange rates have led to significantly higher financial costs for many Vietnamese businesses, particularly for importers and companies with foreign currency loans, which have eroded profits across numerous sectors in the first half of 2025. While these pressures are expected to continue, the State Bank of Vietnam (SBV) is maintaining a proactive and flexible monetary policy to manage the exchange rate in line with macroeconomic fundamentals. According to Pham Chi Quang, Head of the SBV’s Monetary Policy Department, the Vietnamese dong (VND) depreciated by approximately 2.8 percent against the US dollar by the end of June. This depreciation occurred despite a weakening dollar index, primarily due to the widening interest rate differential between the dong and the US dollar, as domestic interest rates were lowered to stimulate economic growth. The pressure is evident in the market; as of late July, official exchange rates at major commercial banks were already reaching as high as VNĐ26,330 per US dollar, while the informal market saw even higher rates, signaling ongoing upward momentum.
Multiple Factors Contributing to Currency Pressure
Beyond its weakening against the US dollar, the Vietnamese dong has also depreciated against other major currencies. For example, the euro and Japanese yen have both appreciated by over 10 percent against the dong since the start of the year. According to Nguyen The Minh, Director of Retail Research at Yuanta Vietnam Securities, the sharp rise in the USD/VND pair is a direct result of the widening interest rate gap and increased demand for the US dollar. He also pointed out that Vietnam’s trade surplus, which typically acts as a protective buffer for the currency, has significantly narrowed this year. In the first half of 2025, while total trade turnover surged by 16 percent to more than US$431 billion, the trade surplus shrank by 41 percent compared to the same period in 2024,to just US$7.2 billion. This is due to imports growing at a faster rate than exports. The pressure on the forex market has also been exacerbated by foreign investors withdrawing an estimated VNĐ40 trillion from the stock market this year, further weakening the local currency.
Corporate Giants Feel the Pain of Exchange Rate Volatility
The impact of the weakening dong is not just theoretical; it has already begun to affect the bottom lines of some of Vietnam’s largest corporations. For instance, Airports Corporation of Vietnam (ACV) voiced concerns that despite a recovery in the aviation industry, the company could face significant losses of up to VNĐ1.7 trillion this year due to exchange rate fluctuations, especially with the Japanese yen. ACV’s Chief Accountant, Nguyen Van Nhung, highlighted that the JPY/VND rate had climbed from 153 to 182 this year alone. In a similar vein, national flag carrier Vietnam Airlines expressed its own concerns, with CEO Le Hong Ha noting that while the company projects a 3.5 percent increase in revenue, it anticipates a profit of only VNĐ5.554 trillion, which is just 66 percent of last year’s result. This is primarily because about 65 percent of the airline’s operating costs are denominated in foreign currencies, making it highly sensitive to currency movements. These examples illustrate how exchange rate volatility is a major headwind for large companies with significant international operations.
Cautious Outlook with Signs of Easing Pressure
Faced with these challenges and with limited foreign reserves to intervene aggressively, the State Bank of Vietnam has chosen a policy of gradual adjustment, allowing a controlled level of depreciation to absorb external shocks and maintain the competitiveness of its exports. While the dong’s depreciation has impacted corporate earnings, analysts are now suggesting that the pressure on the exchange rate may soon ease. This optimism is fueled by recent positive developments, including new trade agreements between Vietnam and the US and the growing expectation that the US Federal Reserve may begin to reverse its tightening cycle. UOB Bank (Singapore) forecasts that the USD/VND rate, while averaging VNĐ26,400 in the third quarter of 2025, is expected to gradually decline to VNĐ26,200 in Q4, and continue to fall into 2026. This forecast, along with a projection from VCBS Securities that the dong will depreciate by a manageable 3-4 percent for the full year, indicates positive signs for the future stability of Vietnam’s forex market.
