The effect of derivatives on the financial positions of banks in Turkey and in EU: a comparative analysis

This comparative study examines the reporting of derivatives according to hedge accounting and the effect of derivatives on the financial positions of the banks in the European Union and Turkey. We found that all of the banks in Europe examined in the study reported their hedge purpose derivatives according to hedge accounting. In contrast, only a small portion of banks in Turkey prefer to use hedge accounting. We conclude that avoiding volatility of reported earnings can be the most important motive to apply hedge accounting for banks in Europe given their high volume of derivatives. Since the volume of derivatives is very low for banks in Turkey, volatility of earnings is not a concern. However, the burdensome requirements for hedge accounting in International Accounting Standards (IAS) 39 and lack of qualified personnel with knowledge of derivative accounting may be the reason why they do not utilise its treatment.