BBVA : Implementation of IAS 29 to BBVA Turkey Financial Statements
06/28/2022 | 01:22pm EST
Implementation of IAS 29 to BBVA Turkey Financial Statements
June 28th, 2022
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Background Information on Hyperinﬂation Accounting
In a hyperinﬂationary economy, the currency loses purchasing power.
Hyperinﬂationary accounting aims to show the Financial Statements in real terms,allowing for a proper comparison with previous periods.
WHEN TO APPLY IT?
According to IAS 29, the need to adopt hyperinﬂationary accounting is determined by the economic environment. Among others, there is one criteria (necessary but not sufﬁcient) that refers to a higher than 100% cumulative inﬂation in a 3 year period.
SITUATION IN TURKEY:
As of Feb 2022, cumulative inﬂation in Turkey during the last 3 years had already surpassed 100%. Audit ﬁrms have publicly stated that hyperinﬂation accounting should be applied in Turkey as of June 30th, 2022. IAS 29 prefers all affected entities to apply it at the same time (previous consensus among stakeholders).
BBVA Group will apply hyperinﬂationary accounting in Turkey1 in 2Q22 with effects from
Jan 1st, 2022 according to IAS 29 accounting standard.
BBVA will apply IAS 29 to its Group entities in Turkey. IAS 29 will not apply to the operations outside Turkey, in particular to the ﬁnancial statements of Garanti Bank in Romania and Garantibank International N.V in the Netherlands.
Hyperinﬂation Accounting (HA) main implications
BALANCE SHEET REVALUATION
1st implementation (Jan 1st, 2022): Positive in Equity & Capital(net of tax effect).
Non-MonetaryAssets (NMA) revaluation from historical value based on accumulated inﬂation, with the limit of its fair value.
The value of the inﬂation linked bonds (CPI linkers) in the Held To Collect portfolio is updated according to the inﬂation rate by year end 2021 (vs as of Oct'21 previously).
On-goingquarterly revaluation of NMA based on inﬂation rate in the period, with the limit of its fair value.Positive in Equity & Capital (net of tax effect).
Net Monetary Position(NMP)value loss due to the inﬂation in the period is registered in the P&L ("Other operating income and expenses" heading) with positive adjustment in "Other Comprehensive Income" (OCI). Negative on P&L. Neutral on
Equity and Capital.
CPI linkers accrual based on current period inﬂation is registered in "Other Operating Income and Expenses" heading (reclassiﬁed from NII) as they are considered a protective asset against inﬂation, partially offsetting the value loss of the NMP.
Re-expression of all P&L headings according to end of period inﬂation.
Re-expressed P&L is converted into € using the closing exchange rate(vs. average FX previously).
NON MONETARY ASSETS
NMP = Net Monetary Position
including CPI Linkers
Net Monetary Position (NMP) =
Monetary Assets - Monetary Liabilities
BBVA Turkey hyperinﬂation accounting impacts as of Mar'22 (pro-forma):
Positive on Book Value, Negative on P&L
Positive impact on Book Value
Negative impact on P&L from the Net Monetary Position loss
(neutral on capital), partially offset by CPI linkers revenue
BBVA Turkey: Book Value (€ Mn)
BBVA Turkey: Net Attributable Proﬁt (€ Mn)
Accrual in 1Q22
at 22.8% vs.
As of March 31st, 2022:
Net Monetary Position:~4.7Bn€
● CPI linkers portfolio: ~3.6Bn€
The NMP loss is not tax deductible.
In 2022, earnings contribution from BBVA Turkey is expected to be non material
according to our year end inﬂation forecast (around 60%)
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BBVA - Banco Bilbao Vizcaya Argentaria SA published this content on 28 June 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 June 2022 17:21:06 UTC.