Turkey takes steps to cut reliance on credit cards

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The banking regulator in Turkey has moved to stem a rising tide of consumer borrowing, announcing new limits on credit card debt and additional risk management requirements for lenders.

On October 9 the Banking Regulation and Supervisory Agency (Bankacılık Düzenleme ve Denetleme Kurumu, BDDK) issued a statement setting out new caps on credit card usage, which the government has said are aimed at cutting the current account deficit. According to state figures, consumer loan levels are rising by around 26% per year, while personal savings rates have fallen to 12.6% of economic output, a record low. As of August, the total value of consumer borrowing stood at TL314.2bn (€116.3bn), of which TL81.2bn (€30bn) was credit card debt, BDDK data show.

While the move may be welcomed by analysts who have been calling for Turkey to reduce its levels of personal debt and narrow the current account deficit, there are concerns that retail sales will be curbed by the tighter access to credit and the higher cost of loans, which in turn could affect the manufacturing and industrial sectors.

Among the measures included in the amended regulations, which come into effect immediately, the limit on a new credit card cannot exceed twice the applicant’s monthly income for one year. The maximum then rises incrementally over the next two years, to an upper spending limit of four times monthly income. While existing card holders will not be affected, those seeking to raise their spending limit will be subject to the new rules.

Aydın Ağaoğlu, the president of Turkey’s Consumer Association, told the English-language Hürriyet Daily News on October 11 that some 50m of the 57m cards in existence have limits that exceed the new rules.

The regulations also increase the minimum payment due on any outstanding debt. As of January 1, card holders with a limit of TL15,000 (€6477) must repay a minimum of 30% of their balance, up from 25%, while those with a spending ceiling of between TL15,000 (€6477) and TL20,000 (€8636) will have to pay off at least 35% of the amount due, an increase from 30%.

Banks to also feel the heat

It is not just the card-carrying public that will be affected by the new regulations. Lenders will be required to make higher provisions for credit card loans, which in turn will result in higher charges and rates, making borrowing more expensive and less appealing. Consumer finance companies will be required to set aside the same reserves as banks.

One effect of the BDDK’s shift was immediately felt. The announcement of the new regulations saw bank stocks on the Istanbul exchange dip amidst concerns over lower earnings and a reduction in loan activity, with shares of Turkish lenders dropping 1.36% in trading on October 9.

Government acknowledged potential downside

Though Deputy Prime Minister Ali Babacan acknowledged there was a downside to tightening conditions for credit card usage, he said a lower ceiling was essential. “The BDDK considered these effects, but the loans exceed the total deposits. We need to be careful here,” he said.

The government may also be wary of reducing credit flow ahead of a crucial election cycle, with municipal, presidential and national polls scheduled between March 2014 and mid-2015. While senior officials, including Mehmet Şimşek, the minister of finance, have vowed the government will not embark on a round of populist measures ahead of the elections, the AKP may not want to be associated with restrictions on personal borrowing and spending.

It will take some time for the full impact of the new credit card regulations to be assessed, as consumers adjust their behaviour and banks recalibrate their earnings outlooks to take into account the higher capital requirements and restrictions. Indeed, it may not be until deep into the fourth quarter, or even the new year, before the effect of the measures on sales and economic growth become apparent, though it will likely take a lot to cool the Turkish penchant for buying on time.


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