After the Central Bank of the Republic of Turkey (CBRT) increased the policy interest rate to 45 percent, a slowdown was observed in loans, while credit card expenditures continued to increase.
While the credit card contract interest rate is 3.66, the default interest is 3.96. For cash withdrawal and overdraft debts, the contractual interest is 4.42 and the delay interest is 4.72. Despite high interest rates, the increase in citizens’ expenditures attracts attention.
While credit card debts have increased 2.5 times in the last year, reaching up to 1.2 trillion liras, expectations regarding the future of regulation on credit cards have also begun to increase.
It has been stated for a long time that some regulations could be implemented by the economic management to prevent consumption demand from increasing inflation.
Signals were given regarding some regulations, especially in the January Monetary Policy Committee (MPK) report and the first inflation meeting of the year.
“WE HAVE A FEW IDEAS, WORKS CONTINUE”
Making a statement at the Inflation Report 2024 Information Meeting, CBRT President Fatih Karahan stated that regulations regarding credit cards are on their agenda.
Karahan, “Will there be an installment limit on credit cards?” to the question, “There was an increase in credit card spending in December. We noted this, we are aware of it. It is not yet clear whether this is temporary or not. It was expected that the minimum wage would increase. For this reason, some expenses may have been brought forward, but regardless of this, we think credit cards should be regulated. We have a few ideas on this subject, our work continues. We will share it with the public when it reaches a certain stage.” he replied.
CREDIT CARD ISSUE FROM ŞİMŞEK
Minister of Treasury and Finance Mehmet Şimşek had previously given the regulatory signal for credit cards. Lightning, “We will reduce loan growth not only by increasing interest rates on credit cards, personal loans, vehicle loans and second home loans, but also by cutting the appetite for lending through banks. You can’t get rich with someone else’s money, credit or cards.” he said.
PRESIDENT OF THE BANKING ASSOCIATION MADE A CALL
Alpaslan Çakar, Chairman of the Board of Directors of the Banks Association of Turkey (TBB), also called for regulation of credit cards in his recent statements.
TBB President Çakar emphasized that the total loan size of the banking sector has reached 11.6 trillion TL, and stated that they expect their return on equity to be around 30 percent.
Çakar also particularly drew attention to the growth in credit cards. Emphasizing that credit card expenditures, whose growth rate reached 177 percent in the middle of the year, decreased to 159 percent at the end of the year, but were still very high, Çakar said that there was a need for a regulation on this issue and that he thought this would come.
Alpaslan Çakar, “Ways to do this include limiting one’s spending amount, increasing interest rates, or limiting installments. We think that such regulations may come to the agenda in the coming period.” he said.
SOME APPLICATIONS HAVE BEEN IMPLEMENTED
Some practices were put into effect by the Banking Regulation and Supervision Agency (BRSA) in recent periods.
With the decision taken on July 31, 2023, BRSA removed the installment option for airlines, travel agencies and overseas accommodation expenses.
It allowed installments of up to 9 months for white goods purchases, 4 months for electronic goods purchases, 12 months for computer products and 6 months for tablet purchases.
ATTENTION WAS DRAWN TO THAT DATE
The public began to wonder what kind of regulations there might be regarding credit cards. Banking sector expert and Economist Kerim Rota shared his expectations.
Emphasizing that the Central Bank and TBB have given signals for some restrictions on credit card spending, Kerim Rota said, “I guess some measures will be put into effect in April after the March 31 Local Elections. Various regulations can be made for credit card expenses. There may be restrictions, especially on interest-free installment options. For example, instead of paying 500 lira for a t-shirt, it seems attractive to pay it in five installments of 100 lira each. This can provoke consumption. For this reason, options such as interest-free 6 installments offered for textile products may be restricted.” he said.
MAY BE THE MOST EFFECTIVE METHOD
Rota explained the most effective method for credit card regulations as follows:
“Increasing the minimum payment amount will be one of the most effective methods of credit card regulation. Because many people with low-limit cards pay their expenses from month to month and face a very serious interest burden.”
IT PRESENTS SOME RISKS
Economist Kerim Rota stated that regulations regarding cards pose a risk of increasing bad loans.With the statistics announced by TÜİK, it was revealed how unfair the income distribution in Turkey is. Increasing the minimum amount on high-limit credit cards does not cause any harm, but if this rate is played too much on low-limit cards, problems will occur. When you increase the minimum payment amount, you risk increasing bad receivables and bad amounts on credit cards, which will negatively affect the lives of many people.” he said.
“THIS REGULATION WILL BE VERY HARDCORE”
“Will there be a regulation in the form of a limit reduction for credit cards?” to the question “Banks can be prevented from giving excessive limits to credit cards, but the limit reduction regulation will be very harsh.” he replied.
“IT WILL DEAL A BIG BLOW TO POVERTY”
Banking sector expert Kerim Rota said that the limit reduction regulation will also deal a big blow to poverty and said, “Credit card limit usage is at a very low level in Turkey. People with good income do not use their limits anyway. Even if the limits of that segment decrease, it will not affect domestic demand. Therefore, I think reducing the limit is not the right method. Especially those who use full credit card limits are a poorer segment. Such a decision would deal a major blow to poverty” said.
HOW MUCH DO CARD EXPENDITURES AFFECT INFLATION?
Underlining that any step taken in credit card regulation without taking income and wealth distribution into consideration would be wrong, Rota said, “In order to find the balance, it is best to raise the minimum payment amount for those over a certain amount, without overloading those up to a certain limit. It is certain that domestic demand has an impact on inflation, but is this domestic demand created by people who spend on the market or by the wealthier segment who do not trust the announced inflation targets and therefore spend high amounts? This is a very controversial and questionable issue.” he said.
Kerim Rota stated that the impact of the restrictions on inflation will be at a low level and said, “I think it is not necessary to highlight credit card regulations so much. I think an interest rate policy parallel to inflation would be much more effective.” said.
“THESE EXPECTATIONS ARE WRONG”
The reason for the recent increase in credit card expenditures is:People have become so accustomed to low interest rates and high inflation that they have the impression that it will always continue like this. Therefore, we had an expectation that the currently high credit card interest rates would remain very low compared to the actual inflation. These expectations are wrong and are a habit left over from the period before the general elections.” he explained.
Stating that some regulations are needed regarding the banking sector, Kerim Rota drew attention to deposit and loan interest and said:
“Some practices will continue to be put into effect to narrow the difference between loan and deposit interest by regulating the required reserve ratios. While someone who makes deposits in banks earns a return of around 40 percent, someone who takes out a loan pays between 70-90 percent on a compound basis. A significant part of this comes from taxes. and bank margins, and this must definitely narrow.”