Turkey's Credit-Card Crunch

Credit-card delinquency is on the rise in a fast-growing economy

The Turks love to flash plastic. They use credit cards for more than 30 percent of all purchases—everything from candy bars to widescreen TVs—according to Garanti Bank, the country’s biggest card issuer.

Now the Turkish government is trying to cool their passion. The authorities remember financial crises past that started with the banks, and they don’t want a repeat. Credit-card debt has risen 20 percent this year, after a 23 percent increase in 2010. Alarmed, Turkish regulators are blocking some consumers from using credit cards to borrow cash at automatic teller machines. The ban hits cardholders who have failed to pay off at least 50 percent of their balances during three of the preceding 12 months. That affects an estimated 3.7 million delinquent cardholders, and 2.5 million others who make only their required minimum monthly payments, which are generally less than half the balance.

Dogan, a retired bank employee in Ankara who declined to give his last name, says he was shocked to discover that his credit card no longer worked at ATMs, although he had paid the required minimum. “My own bank won’t give me money, the place I worked at for 25 years!” he fumes. A spokesman for the banking regulator declined to comment on the changes, saying it is too early to assess their impact.

With interest rates on Turkish cards at nearly 29 percent, “people get into a vicious circle,” says Ahmet Aysan, an economist at Boğaziçi University in Istanbul who studies the market. “Not that many people are financially literate. The regulators are trying to protect them.”

Banks have aggressively marketed credit cards in an economy where incomes nearly doubled over the past decade, to $12,300 per capita last year. Garanti Bank’s website urges customers to qualify for cash bonuses by using their cards as often as possible, “even to buy an apple from the local supermarket.” Three Turkish banks—Garanti, Yapi Kredi, and Işbank—now rank among the top 10 card issuers in Europe, according to industry newsletter the Nilson Report. Total purchases per card averaged $3,500 last year.

Some 6.9 percent of Turkish card accounts are at least 90 days delinquent, just above the U.S. rate. While delinquency rates in most major economies are declining, in Turkey they are rising and could exceed 9 percent by next year, says Haluk Akdogan, an analyst who follows Turkish banks at ING Group in London. At the same time, the volume of personal consumer loans has nearly doubled since 2009 as consumers borrow to pay down card debt. Interest rates on the loans are lower than on cards. Yet the practice puts more households at risk, because borrowers usually have to get relatives or friends to cosign for loans, economist Aysan says.

Consumer groups accuse banks of setting a trap. “Banks hand out cards too freely and then push a culture of consumption,” says Turhan Çakar, head of the Consumer Rights Assn. in Ankara. The association, however, opposes the new restrictions on ATM use. Says Çakar: “This is going to hit some of the very poorest, the kind of people who can only survive by juggling cash flows on five or six credit cards.”

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