Turkey Rolls Back Babacan-Era Curbs on Lending Amid Growth Fearsby and
Plans to lower mortgage rates, raise credit card installments
Consumer loan growth lowest since 2002 due to restrictions
Turkey’s government is taking the brakes off consumer borrowing, as fears grow that depressed lending will lead to a slowdown in the region’s biggest economy following an attempted coup last month.
Measures planned by the regulator include extending the repayment period on consumer loans to four years from three, and raising the number of installments for credit card purchases, Customs and Trade Minister Bulent Tufenkci said on Wednesday. Officials are also looking to reduce mortgage rates and ease curbs on borrowing to import goods such as mobile phones.
The plans would effectively undo a series of restrictions imposed under former economy chief Ali Babacan -- a figure trusted by investors for his prudent and conservative policies -- after consumer loan growth had caused a spike in Turkey’s current-account deficit. While that crisis has eased, investors are unlikely to welcome the changes, according to Guillaume Tresca, a senior emerging market-strategist at Credit Agricole CIB in Paris.
The measures could push the deficit wider again and leave Turkey “sensitive to portfolio flows,” Tresca said in an e-mail. Investors are likely to view the policy as evidence the government expects a slowdown in consumer demand after the failed coup, he said.
Turkey’s current-account deficit ballooned to just under 10 percent of gross domestic product in 2011, driven by a surge in consumer lending that grew an average 55 percent a year from 2002 to 2015. With bank loans also growing at an average 25 percent annually, the regulators stepped in.
Consumer loan growth fell to 8.3 percent last year, the lowest rate since a contraction in 2002, and slipped to 4.8 percent in the 12 months to July. The current-account gap, a key metric watched by investors because it leaves the economy dependent on foreign capital flows, is forecast to be 4.5 percent of GDP at year-end.
That makes easing lending restrictions less risky, according to Tufenkci, who said the rollback of prudent measures would not be “uncontrolled.” Banking regulator Mehmet Ali Akben told the state-run Anadolu Agency on Tuesday that a restructuring of credit card debt is also planned.
Even so, there are warning signs. Turkish banks, often urged by President Recep Tayyip Erdogan to lower borrowing costs, have seen their loans-to-deposit ratio rise above 124 percent from just over 40 percent in 2003, forcing them to look overseas or to the central bank for funds to finance new lending.
The ratio of Turkish households’ debt to GDP hit also reached a record 21.79 percent in the first quarter of 2015, and stood at 19.39 percent at the end of the year, according to the latest International Monetary Fund data. That corresponds to a 174 percent increase over the past decade, though it remains well below a ratio of 79.93 percent for the U.S., 178.83 percent for the U.K. and 85.22 percent for South Korea.
“The backdrop is less threatening than a few years ago, but it is the kind of news that investors don’t like,” Tresca said of the government’s plans to ease lending restrictions. “It really is a drawback.”