Türkiye may exclude banks from inflation-adjusted accounting

Türkiye will move to inflation-adjusted accounting, but financial institutions may be excluded from the practice, Finance Minister Mehmet Simsek said late on Tuesday.

Turkish companies’ end-2023 balance sheets will be inflation adjusted, with the practice expected to continue until 2026 due to current inflation forecasts, the Treasury told Reuters last week, a change analysts said would most affect the country’s banks.

“We will move to inflation accounting. Maybe there’ll be an exception for financial institutions, and we’ll not include them to the practice. But apart from that, we will move into that practice,” Simsek told a parliamentary commission.

Türkiye’s economic woes

The Treasury’s revenue administration published a draft regulation this month detailing a move to inflation accounting.

Turkish annual consumer price inflation climbed to 61.53 per cent in September, the most recently available data.

In the last two years, companies have sought to protect themselves from high inflation by purchasing fixed assets rather than leaving money in bank accounts. Those that have turned to non-monetary fixed assets are expected to receive higher profits and pay correspondingly higher taxes in 2024.

Turkish banks, which saw their average profit increases slow to 50 per cent in the first half of this year following a 366 per cent surge in 2022, would be among those affected most negatively by the move to inflation-adjusted accounting, analysts said.

“Banks will report perhaps a quarter of the profits they used to report,” Soner Gokten, assistant professor for accounting and finance at Turkey’s Baskent University, said last week.

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