Spain's BBVA shifts to hyperinflation accounting in Turkey, shares slide

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A woman scans through her phone outside a BBVA bank building in Madrid, Spain, November 15, 2021. REUTERS/Juan Medina

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  • Hyperinflation accounting in Turkey hits earnings
  • Earnings impact is worse than analysts expected
  • New Turkey accounting system boosts capital

MADRID, June 29 (Reuters) - Shares in BBVA (BBVA.MC) fell on Wednesday, after the Spanish bank said hyperinflation accounting at its Turkish unit Garanti (GARAN.IS) would erode its contribution in 2022.

BBVA, which has an 86% stake in Garanti, said on Tuesday restating inflation-adjusted numbers from Jan. 1 had a negative impact of 324 million euros ($341 million) on the group's net attributable profit in the first quarter. read more

The impact of restating inflation-adjusted numbers from Jan. 1 onwards would be reflected in second quarter results, it said.

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Following the new accounting system, BBVA restated its net profit in the first quarter to 1.326 billion euros.

BBVA said Garanti would not make any material contribution to the group's earnings because of Turkey's expected 2022 inflation but the bank said capital and tangible book value would be positively impacted in the coming quarters.

Shares in BBVA, which fell as much as 2.3%, were down 1.5%, underperforming both the European banking index (.SX7P) and Spain's blue chip index Ibex-35, which were falling 0.9% and 1.2%, respectively, at 0847 GMT.

"The impact of hyperinflation accounting on earnings is more painful than thought and depletes most the outperformance stemming from Q1 numbers," Kepler Cheuvreux said.

Like larger Spanish rival Santander (SAN.MC), BBVA has been expanding in emerging economies as it struggles to boost income in more mature markets, although some analysts cite risks from its exposure to macroeconomic uncertainty in Turkey.

According to international accounting standards, Turkey met one criterion for adopting hyperinflationary accounting in February 2022, when its cumulative inflation reached more than 100% in a three-year period, BBVA said.

With monthly inflation at 73.5% in May, BBVA executives had said the bank could start applying hyperinflation accounting from the second quarter.

Broker RBC said using hyperinflationary accounting was "symptomatic" of an unstable economy, adding: "Although this event was well flagged, consensus still had allocated profits to the division for 2022."

The accounting technique had a positive impact of 19 basis points on BBVA's fully loaded core Tier-1 capital ratio at the end of March, which rose to 12.89%, and increased its book value by 254 million euros, BBVA said.

BBVA, which affirmed its financial goals for 2024 on Tuesday, also said it would start executing on July 1 the final tranche of a 1 billion euros share buyback to conclude its 3.5 billion euros programme. read more

($1 = 0.9503 euros)

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Reporting by Jesús Aguado; Editing by Richard Chang and Edmund Blair

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