Turkey May Exclude Banks from Inflation-Adjusted Accounting, Says Minister – Reuters

Turkey is set to implement inflation-adjusted accounting, although financial institutions may be exempt from this practice, according to Finance Minister Mehmet Simsek.

Starting with the end-of-year balance sheets for 2023, Turkish companies will adjust their financial statements for inflation, a process that is projected to extend through 2026 due to ongoing inflation predictions. This shift is anticipated to have the most significant impact on the country’s banks.

Simsek addressed a parliamentary commission, stating, “We will move to inflation accounting. Maybe there’ll be an exception for financial institutions, and we’ll not include them in this practice. But apart from that, we will implement it.”

Recently, the Treasury’s revenue administration released a draft regulation outlining the transition to inflation accounting.

As of September, Turkey’s annual consumer price inflation rate reached 61.53%, the latest data available. Over the past two years, many companies have opted to invest in fixed assets to shield themselves from soaring inflation, rather than keeping their funds in bank accounts. Companies that have chosen to invest in non-monetary fixed assets are expected to see increased profits and higher tax obligations in 2024.

Analysts suggest that the banking sector, which experienced a slowdown in average profit growth to 50% in the first half of this year—down from a staggering 366% gain in 2022—will face the most pronounced challenges from inflation-adjusted accounting.

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