By Ebru Tuncay and Birsen Altayli
ISTANBUL (Reuters) -Turkish companies' end-2023 balance sheets will be inflation-adjusted, with adjustments expected to continue until 2026 due to current inflation forecasts, the Treasury told Reuters, a change analysts said would most affect the country's banks.
The move comes after Turkish 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, standing at 61.5% in September.
The policy is set to benefit companies that are invested in fixed assets or are highly leveraged.
In written answers to questions from Reuters, the Treasury said any profit or loss resulting from inflation adjustments in end-2023 balance sheets would not affect companies' 2023 tax bases but could affect them in subsequent years.
The Treasury made the comments after its revenue administration published a draft regulation last week detailing a move to inflation accounting, marking a return to the practice after a break of about 20 years.
In the last two years, companies have sought to protect themselves from high inflation and those which 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 profit increase slow to 50% in the first half of this year following a 366% surge in 2022, will be among those affected most negatively by the move, analysts said.
"Banks will report perhaps a quarter of the profits they used to report," said Soner Gokten, assistant professor for accounting and finance at Turkey's Baskent University.
Manufacturers, most of which choose to finance investments with credit, are expected to fare better with the inflation adjustments.
"Manufacturers and traders finance investments largely with loans and add assets which are protected against inflation ... As they are highly leveraged, they are expected to report (higher) profits," said a tax auditor with a consulting firm who was not authorised to give his name.
Borrowing by Turkey's top 500 companies jumped 67% in 2022 to 2.5 trillion lira ($134 billion), according to data from the Istanbul Chamber of Industry, as companies rushed to secure loans with rock-bottom interest rates due to Turkey's low interest rates at the time.
Treasury and Finance Minister Mehmet Simsek has led a return toward more orthodox economic policies since his appointment following May elections. The central bank has meanwhile hiked interest rates by 2,150 basis points to 30% to counter inflation after years of loose policy.
($1 = 28.1170 liras)