* Exporters locking in more favourable rates into 2017
* Smaller operators remain reluctant to hedge
* Britain is Ireland's largest single trade partner
By Padraic Halpin
DUBLIN, Dec 20 Irish banks have seen exporters
to Britain take advantage of the recent strengthening in
sterling to increase their currency hedging and move away from
converting money via spot trades, which had been on the rise
Britain is euro zone member Ireland's largest trade partner,
so the plunge in sterling against the single currency following
its June vote to leave the European Union had left exposed any
Irish exporter not using forward or options contracts to protect
themselves against currency shifts.
Those who hedge their currency exposure typically buy cover
for three, six or nine months, the banks said. That meant some
firms' hedges had run down by October and they had to start
switching some sterling into euros - though sterling was still
almost 20 percent off pre-Brexit levels - to pay their bills at
The pound has since recovered and registered its best month
in eight years in November to stand around 10 percent lower at
84.10 pence to the euro.
Allied Irish Banks (AIB), the country's largest
corporate and SME lender, said it recorded its strongest two
months for sterling seller activity by volume in October and
November, initially via spot trades.
"The spike came as early as October. Sterling sellers who
had hedging in place prior to Brexit had to start selling, even
at 90 pence, in order to fund working capital," John Sheils,
treasury manager at AIB, told Reuters.
"This month, with sterling back down below 85 pence, we're
seeing good flows and a bit more forward cover being taken out.
There now seems to be more of an appetite to put some hedging in
Forwards and options contracts allow companies to exchange
cash in future at a rate set today, or to be remunerated for
disadvantageous moves in currencies in between times. They pay a
small percentage for the privilege.
Royal Bank of Scotland's Irish unit Ulster Bank said
it has seen a pick-up in enquiries from customers and more
activity regarding specific pricing of hedges into 2017,
including a number of new requests.
This has led to a gradual rise in executions of forward
currency hedging for 2017 and into 2018, Stephen Masterson, Head
of Corporate Banking, said in an emailed statement.
Bank of Ireland, the country's largest lender by assets,
said that like AIB it saw a spike in the weeks leading up to the
referendum and that activity has increased again in the last
three or four weeks.
"The move back down to 85 pence is a godsend for lots of
people who might have been fretting when there was talk about
parity (with the euro)," John Moclair, Bank of Ireland's head of
customer group, global markets, told Reuters.
Moclair said that compared with last year there was no
marked change in the propensity of businesses to hedge, while
AIB's Sheils attributed the uptick to exporters who have
previously hedged, suggesting smaller operators remain reluctant
to take out cover.
A survey by the Irish Exporters Association in August showed
that half its members did not plan to hedge following the Brexit
vote despite the fact that a euro-sterling exchange rate at 0.80
to 0.85 or above impacted profitability for 65 percent of firms.
"My sense is that nothing has changed with smaller firms,"
IEA Chief Executive Simon McKeever said. "It's a serious issue
with a sudden sharp risk always going to be to the upside."
(Editing by John Stonestreet and Hugh Lawson)