Fitch: Suspension of Inflation Accounting for Non-Banking Financial Institutions is "Neutral"

Fitch Ratings has reported that the Banking Regulation and Supervision Agency's (BRSA) decision to suspend the implementation of inflation accounting for non-bank financial institutions (NBFIs) will not significantly impact the credit profiles of Turkish NBFIs.

Fitch stated, "Although the profitability and leverage metrics reported by issuers in 2025 may appear stronger under inflation accounting, our assessment focuses on the issuers' core profitability independent of the accounting effects of Turkey's still high inflation."

On December 5, the BRSA announced that the inflation accounting intended to take effect on January 1, 2025, would not be implemented.

Fitch noted, "As stated in our Emerging European Finance and Leasing Companies Outlook 2025 report, the implementation of inflation accounting would have led to significant monetary losses for most NBFIs due to their net monetary asset surplus position. This situation could have negatively affected reported earnings and internal capital formation, potentially resulting in reported net losses and higher leverage ratios under inflation accounting. However, we expect the core margins and core profitability of most issuers to remain robust under inflation accounting."

Due to the absence of monetary losses associated with inflation accounting, Fitch expects profitability (i.e., average return on assets and internal capital generation) to remain nominally high in 2025, stating, "However, we will continue to assess strong nominal earnings in conjunction with high inflation to analyze core profitability."

Fitch also observed that even if inflation accounting had been implemented as planned, NBFIs would calculate taxes based on nominal, unadjusted accounts and prevent any tax advantages from monetary losses.