Experts say decreasing the number of credit card installments to 12 months will not prevent consumers from overspending as they will seek new ways to finance their planned expenditures.
The rapid growth Turkey achieved last year -- though a strong sign of the Turkish economy’s resilience against external shocks at a time of global uncertainties -- resulted in a current account deficit (CAD) of almost TL 49 billion ($30.8 billion) that was mainly triggered by massive energy imports and loan expansion. (source)
In order to cool down the overheating economy, Turkey’s economy administration, including the central bank, Finance Ministry and several public institutions, such as the Banking Regulation and Supervision Agency (BDDK) have rolled up their sleeves for additional measures to slow domestic demand. The central bank has raised the reserve requirements four times since December 2010 in order to reduce the amount of money available to lend and also cut the interest rate.
The BDDK suggested that annual loan growth currently exceeds 35 percent, compared to the central bank’s target of 25 percent. Meanwhile, the BDDK plans to increase the down payment rate for mortgages from 25 percent to 40 percent to make it more difficult for consumers to buy residences with loans. The Finance Ministry signaled a tax increase on imported cars but later said it was not needed as they forecast that the CAD would be lower in the second half of the year. The Finance Ministry also considered raising the Banking and Insurance Transaction Tax (BSMV) and Resource Usage Support Fund (KKDF) but later on retreated, saying it was not necessary.
The latest action to fight the overheating economy is being signaled by the Savings Deposit Insurance Fund (TMSF). To prevent people from spending beyond their means, they signaled they would limit the number of installments on credit cards from 24 to 12 months. All the measures taken by the economy administration, including the credit card installment limit, are said to curb the loan growth in the country to make it difficult for consumers to spend money they do not have.
‘Smooth transition needed’
In his remarks to Sunday’s Zaman, Ahmet Coşkun, the CEO of Süvari, a leading Turkish textile company, said he has doubts about the latest measures on limiting the number of credit card installments. “I am not against cutting the number of installments to 12 or 10, but when you decrease it to three, we may suffer losses since consumers will have difficulty adjusting their budgets,” Coşkun said. “There should be a smooth transition from 24 installments to eight or 10. Only then will people get used to the diminishing number of installments.” Süvari’s chairman also added that it is good to prevent consumers from excessive spending but noted that people who are not overspending will be punished the most from the measure, as they now have to pay more per month for a certain good.
On the other hand, Albaraka Türk Participation Bank Deputy General Manager Mehmet Ali Verçin underlined that people will seek other ways to buy goods with extended payment methods. “We should not expect that consumption with credit cards will decline as people will look for other ways, such as using checks or promissory notes to postpone the payment,” he stated. “However, a stable economy is for the benefit of all the people living in this country. Despite the fact that the profits of Turkish banks, including ours, are expected to decline with these precautions taken by the public authorities, [referring to the central bank, BDDK, TMSF and finance ministry] we should not offer other kinds of payments because long-term economic stability is always Albaraka’s priority,” Verçin said.
Consumers’ Union President Nazım Kaya said limiting the number of installments for credit cards is good news from any point of view. “I am a strong proponent of this measure. People should not spend money they do not actually have,” he noted, adding: “Buying merchandise with installments of up to two years is ridiculous. It’s like people think they do not have to pay for the product with installments. But when they are not able to make a payment one month, the real problem starts as the debt becomes a huge mountain. I think it is good to prevent people from more spending.”
Kaya also said that banks always underline that credit cards are tools to pay, not for borrowing money, and said that banks do not have the right to complain that credit card sales could fall when they decrease the number of installments. “Well, they [banks] always say that credit cards are not tools for borrowing money. Let’s eliminate installments from credit cards, then. It is the right time to do it. With this action they can prove if they really mean what they say, and we can also prevent more consumers from overspending,” Kaya added.
