FINANCIAL RISK MANAGEMENT AND STRATEGIES TURKISH COMPANIES CAN IMPLEMENT AGAINST CURRENCY FLUCTUATIONS

In developing economies such as Türkiye, maintaining financial stability is directly linked not only to the effectiveness of monetary policy institutions but also to the effectiveness of companies’ risk management strategies

Global financial uncertainties, trade wars, increasing geopolitical threats, and reshaped monetary policies are increasing volatility in financial markets. In this environment, companies need to review their currency risk management plans and strengthen them in line with the new paradigm to protect themselves against possible fluctuations in foreign exchange rates. Especially for real sector companies with import-dependent input structures, sudden movements in exchange rates can have serious effects on cash flow, balance sheet health, and long-term investment decisions. A strategy needs to be developed in this context, ranging from industrial organizations that import/export regardless of their size to SMEs that can borrow in foreign currency or trade raw materials priced in foreign currency.

In this context, foreign exchange risk is important not only for the financial sustainability of companies but also for the sustainability of economic stability at the macro level. In developing economies like Türkiye, maintaining financial stability is directly linked not only to the effectiveness of monetary policy institutions but also to the effectiveness of companies’ risk management strategies. Exchange rate risk requires a systematic solution chain that affects many factors such as the company’s financial structure, financial plan, goals, strategies, and internal processes. In addition, exchange rate risk threatens the company’s long-term structure while increasing systematic risks. Therefore, it is no longer a choice but a necessity for Turkish companies to implement certain basic principles in order to build more resilient and sustainable structures against currency risk.

The most fundamental step in financial risk management is identifying and analyzing the source of the risk type. Measured risk forms the basis for the measures to be taken. Consequently, one of the main challenges companies face when managing currency risk in Türkiye is a lack of financial literacy. Some companies are not sufficiently familiar with risk management tools and are therefore unable to base their strategic planning on solid foundations. Companies can only become resilient to currency risk if they know how and when to use financial tools, not just if they have access to them. Additionally, many companies view currency risk as short-term fluctuations and therefore delay taking preventive measures. At this stage, companies must first determine their net foreign exchange positions and decide whether these positions are structural or temporary. Regular monitoring of net foreign exchange positions is a key indicator that should be closely tracked not only by companies with foreign exchange expenses but also by those generating foreign exchange revenue. A solid structure can be built against exchange rate risk by increasing financial literacy, recognizing financial instruments that provide protection against exchange rate risk, developing risk management awareness, and strengthening internal control mechanisms.

At this point, one of the most basic steps in risk protection is actually preventing risk before it occurs. In particular, over the past 10 years, various rules have been introduced for companies in Türkiye regarding the use of foreign currency loans. The underlying aim was to prevent companies/firms without foreign currency income from taking on foreign currency loans, i.e., foreign currency open positions. This is because any increase in the exchange rate would increase the debt burden of these firms and lead to the deterioration of their financial structures. In this context, the aforementioned regulations have made a significant contribution to the foreign currency open position of the real sector. At this point, companies that have access to foreign currency loans within the framework of regulations need to analyze foreign currency financing channels beyond mere pricing. In particular, minimizing maturity mismatches between financing maturities and foreign currency revenue sources and opting for such financing will provide protection for companies against fluctuations.

Another fundamental method that can be applied against exchange rate risk is the natural hedge method, which ensures that revenues and expenses are conducted in the same currency. For example, an exporting company sourcing raw materials in foreign currency or a company generating foreign currency revenue through foreign currency borrowing minimizes currency risk. Such operational balancing adjustments help limit the effects of currency fluctuations without the need for financial derivatives.

For companies that must maintain long or short foreign exchange positions due to the nature of their business and operational activities, domestic financial markets offer a wide range of transaction options. Although derivative instruments have evolved from being tools to tradable assets, they can still provide significant contributions to currency risk management when used in accordance with their intended purpose. At this point, it is critical to understand these products correctly and use them in line with the company’s risk appetite. In addition to conventional banks, participation banks have also developed a portfolio of products that contribute to financial risk management in recent years. Therefore, when designing risk management, it is important to obtain appropriate support/consultancy from financial professionals to use these tools correctly.

From the perspective of participation banking, participation banking is based not only on interest-free finance principles but also on a business model that is real economy-based and open to risk sharing. In this regard, it offers different advantages in terms of transforming financial risk and managing it in an integrated manner with the real sector. Participation banks can develop partnership and trade-based solutions with their customers, thereby ensuring that risks are distributed in a more balanced and fair manner. It is possible to establish a partnership-based financing structure consistent with the natural hedging strategies I mentioned above within participation banks.

In summary, making companies more resilient to currency risk has positive results not only for their own balance sheets but also for the overall stability of the Turkish economy. As I mentioned at the beginning, protecting themselves against currency risk and establishing a sound financial risk management system is no longer a choice but a necessity for companies. Our companies must first identify the source of risk accurately, explore ways to avoid creating risk, and seek fundamental methods and financial professionals to protect themselves to the maximum extent possible from existing risks.