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Turkey may exclude banks from inflation-adjusted accounting: finance minister

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

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 in the practice. But apart from that, we will move into that practice,” Şimşek told a parliamentary commission.

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 percent in September, according to 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 who 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 percent in the first half of this year following a 366 percent 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 Gökten, assistant professor for accounting and finance at Turkey’s Başkent University, said last week.

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