Turkey Clamps Down on Consumer Borrowing With Loan Limits

Turkish regulators introduced new limits on the use of credit cards and loans after consumer borrowing nearly doubled in the past three years and the nation’s current-account deficit ballooned.

Credit card repayments will be limited to nine months, while installments will be banned for telecommunications, jewelry, food and gasoline purchases. The rules, which come into effect Feb. 1 and were published today in the Official Gazette, are stricter than a November draft that proposed capping installments to a year for home appliances.

Turkey’s current-account shortfall this year will probably widen to 7.2 percent of gross domestic product from 6.1 percent last year, according to the average estimate of 29 economists surveyed by Bloomberg. That would be the biggest among the so-called fragile five emerging-market economies most vulnerable to a withdrawal of foreign investment needed to finance their deficits.

“The new loan regulations are tighter than our expectations,” Ozgur Altug, chief economist at BCG Partners in Istanbul, said by e-mail today. “Good for the current account deficit, but bad for growth, especially in this environment.”

Outstanding consumer loans in Turkey rose to 246 billion lira ($115 billion) as of Dec. 20 from 129 billion lira in the same week of 2010, according to data on banking regulator Bankacilik Duzenleme ve Denetleme Kurulu’s website. Total loans in the banking system rose to 1.04 trillion lira from 794 billion lira a year ago.

Bank Stocks

Turkey’s 16-member banking index has fallen 11 percent since a probe into corruption led to the detention of people including the sons of cabinet ministers and the chief executive officer of state-run lender Turkiye Halk Bankasi AS on Dec. 17. Charges in the probe include money laundering, bribery, gold smuggling and fixing of government tenders.

Turkiye Garanti Bankasi AS is the bank with the largest proportion of its loan book made up of credit card and personal loans, at 32 percent, according to data compiled by Bloomberg. Yapi ve Kredi Bankasi AS, part-owned by UniCredit SpA, has the highest percentage of purely credit card debt on its balance sheet, with 19.7 percent.

The regulations follow on from an increase of credit card provisioning ratios by 300 basis points to 4 percent, introduced by the BDDK in August.

Installment Debt

Installments accounted for 48 billion lira of outstanding debt in October 2013, according to data published by the BDDK. The proportion of credit-card debt taken out through installments exceeds outright credit-card debt by 38 percent.

“Credit cards, don’t get them,” Prime Minister Recep Tayyip Erdogan said July 16 in Ankara. “My poor brother loves to get a credit card in hand, as if he’s showing off. Then, the salary is finished before the end of the month because of interest and such. A big game is being played and we have to spoil that game together.”

The rules cap the number of monthly installments for consumer loans at 36 months and for car loans at 48 months, effective immediately. Home loans are exempt from the cap.

“These regulations will dent domestic demand and coupled with the political risks, economic activity will be under pressure,” Tugce Karagul, an analyst at Tera Menkul Degerler AS in Istanbul, wrote in an e-mailed report today. “From the financial stability point of view, we think that these proactive measures should help the country’s external balances by curbing domestic demand.”

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