The Mid-Corp Treasurer’s
FX Survival Guide

Faced with the demands of a big business but not equipped with the same resources, mid-sized corporates have unique challenges when it comes to their foreign exchange (FX). What are their options?

Mid-sized corporates, or mid-corps, are the awkward in-betweeners of the business world. Too big to be an SME, yet without the resources of a large enterprise, mid-corps face unique challenges when it comes to their international banking.

“Mid-corps tend to operate on a very nimble basis,” says Chris Paizis, Head of Corporate FX and International Banking at Absa Group. “They’re not staff-heavy, and they seldom have a dedicated treasury team. Often it’s the MD or CEO himself or herself who’s involved in the underlying hedging. This means they have less airtime to spend on FX, even though – especially if it’s an import/export company – FX is a hugely important part of their business.”

“Take that, and couple it with the fact that over the past two years or so, the main elements in the market have been volatility and uncertainty,” says Paizis. “That doesn’t make life easy – and again, it’s compounded by global supply disruptions. How does that impact your business when you’re trying to budget your FX at a rate that works for you, given that you don’t have a dedicated treasury team?”

Fortunately, there are a few steps that mid-corps can take to support their treasurers in this environment.

The challenges of the FX environment place a massive emphasis on the relationship the business has with its main banker. “In mid-corps FX might reach all the way up to the CEO, so there’s no substitute for having a relationship with your bank that’s built on trust,” says Paizis. “You need to be able to budget scientifically and to come up with the appropriate hedging products that fit the current volatility and big moves in the currencies. Banks have that expertise – and it’s certainly in the bank’s best interests to ensure that its clients are in the best possible position to manage their underlying business flows, which are very much a function of FX hedging and FX volatility.”

Businesses across industries have adopted digital tools to adjust to the changing operating environment. “Those tools are not only there to facilitate work from home and security,” says Paizis. “They also enable clients to make payments, hedge their FX, look at their positions, understand their marked-to-market positions... Those digital capabilities, coupled with a personal touch, are exactly what a mid-corp needs to get through this turbulence.”

“If you’d asked me three years ago if I had an outlook on the rand, I would have had a much stronger view than anybody could possibly have today,” says Paizis, pointing again to the ongoing volatility and uncertainty in the FX markets. “Massive events are occurring. How will they affect your costing and inputs, as well as the ability of consumers to spend on your product?”

Although many mid-corporate businesses may use third-party FX expertise, they ultimately get their financing and their FX facilities from their bank. “That’s why you need a banking partner that understands your pain points,” says Paizis. “Your bank is an easy place to have that conversation – and it doesn’t cost anything extra. It’s something that we as a bank are very keen to offer.”