Turkey’s banks plan to seek inflation-adjusted accounting -sources

By Ebru Tuncay

ISTANBUL (Reuters) – Turkish banks plan to urge Treasury authorities to allow them to use inflation-adjusted accounting, rather than exempting them and ramping up taxes for the sector as the government currently plans, three senior bankers told Reuters.

Last week, Finance Minister Mehmet Simsek said Turkey would move to the inflation-adjusted accounting method for companies, but that financial institutions may be excluded.

Adjusting for inflation would shield firms from higher taxes and give a more realistic picture of performance, given annual inflation has risen above 61%. The banking sector, whose assets totalled 21 trillion lira ($737 billion) in September, wants to enjoy that benefit just like private-sector companies.

“Banks want to implement inflation accounting and a meeting with the Treasury is being considered in order to raise this request,” said a senior banker, who requested anonymity.

Part of the reason was that banks did not want high inflation to give the appearance of outsized profits at a time when the country remains gripped by a cost-of-living crisis, the banker said.

The Banks Association of Turkey (TBB) declined to comment on the issue.

Turkish companies’ end-2023 balance sheets would be inflation-adjusted, with the practice expected to continue until 2026 due to current inflation forecasts, the Treasury told Reuters in October.

RISING PRICES

Inflation soared above 85% last year following an aggressive rate-cutting cycle that sparked a currency crash in late 2021. Inflation subsequently declined but rose again in recent months and stood at 61.4% in October.

Banks’ profits are expected to fall by more than half after inflation-adjusted accounting, and some banks may post losses, another banker said.

“Banks want to have real, inflation-adjusted profits and want to implement the practice in their balance sheets,” he added.

The annual increase in Turkish banks’ profits slowed to around 50% in the first nine months of 2023, following a surge of 366% last year.

Since May elections, the government has raised several tax rates, including banks’ and financial institutions’ corporate tax to 30% from 25%, to fund the recovery from major earthquakes that struck the country in February.

Another senior banker said that the reason for banks being excluded from the inflation-adjusted accounting practice was the government’s need of the tax revenues they generate.

($1 = 28.5090 liras)