Deutsche Bank Thailand has arranged the market’s first onshore hedge for a foreign corporate under the Bank of Thailand’s (BOT) new Non-Resident Qualified Company rules.

The bank arranged the market’s first transaction for a corporate client just three weeks after the BOT published new rules for Non-Resident Qualified Companies (NRQC) on 5 January 2021.

The new rules allow non-resident companies to access the onshore Thai Baht (THB) liquidity, without providing underlying documents for each transaction.

"The solution provides our corporate clients access to more affordable and flexible THB hedging under the new NRQC rules," commented Teerada Tuppun, head of Global Markets at Deutsche Bank Thailand. "Foreign corporates can save on hedging costs by accessing the onshore foreign exchange curve, because the onshore rates are generally cheaper than offshore hedging rates. We expect the new NRQC rules to attract many more non-resident companies to hedge onshore, creating an entirely new market for our THB onshore franchise.”

The new rules

On 5 January, Vachira Arromdee, assistant governor at BOT's Financial Markets Operations Group, revealed the new rules allowing greater flexibility for non-resident companies to conduct foreign exchange transactions against Thai baht with domestic financial institutions under the NRQC Scheme. Non-financial companies having trade and direct investment in Thailand participating in the NRQC Scheme are now entitled to two main benefits:

1. Manage currency risks related to Thai baht more freely without having to provide proof of underlying for each transaction. The scope of eligible underlying transactions has also been broadened to include anticipatory hedging and balance sheet hedging.
2. Manage Thai baht liquidity more flexibly without being subject to the end-of-day outstanding limit of THB200m imposed on Non-resident Baht Accounts (NRBA).

Since the NRQC Scheme will facilitate non-resident companies to engage in foreign exchange transactions with domestic financial institutions more freely, the outstanding limit on Thai baht liquidity that domestic financial institutions may provide to non-residents without proof of underlying has been reduced as this channel has become less necessary and in order to support activities under the NRQC Scheme. 

This relaxation of rules is part of the BOT’s effort to develop Thailand’s FX ecosystem through structural reform of the onshore foreign exchange market, aiming to increase the breadth and depth of the onshore foreign exchange market, as well as enhance market transparency and surveillance.

Practical implications

With Thai Baht appreciating 10% from its peak in 2020, the cross currency rates and hedging costs became more volatile for foreign companies having THB exposure, at a time when companies are tightly managing costs for the Covid economic recovery.

The NRQC Scheme allows corporates with trade and direct investment in Thailand to access onshore THB liquidity with a greater flexibility, easily switching their hedge from the offshore curve to onshore curve, or vice versa without making any changes to their current hedge workflow. Deutsche Bank says that qualified non-Thai companies can register for NRQC status through its Bangkok Branch.