In recent years, Turkey has seen a boost in the use of loans both in individual and in corporate level. Apparently, Turkish households took out loans to afford their expenses like never before in the past couple of years. The rapid increase in loans is not the only problem. Apart from loans, there are also 56.7 million credit cards in circulation according to the data from Interbank Card Center (BKM). It is reported that nearly 38% of overall payments in Turkey is paid by credit cards. Excessive use of loans accompanied by over use of credit cards brought about some side effects. Now, Turkey is trying to deal with the problem of millions of people indebted to banks.

Considering the fact that even countries with a certain economic depth are struggling with loan and especially mortgage debts of their citizens, this situation is not surprising for Turkey.In 2013, nearly 1million people were unable to pay their credit card or personal loan debt;this was 49 per cent more than the number in 2012. In 2014, this figure hasalmost tripled; being 2.98 million in the first month of 2015.These numbers materialize that people spend much more than they earn and this fact is about to bring trouble on Turkey’s economy.

 According to the data provided by Banking Regulation and Supervision Agency (BDDK) of Turkey, Turkish citizens borrowed 74.4% more personal loans in 2014 when compared to 2013. At the end of January 2014, 86.7 billion Turkish Liras were borrowed from banks in Turkey as personal loan. This figure rose to 151.3 billion Turkish Liras at the end of January 2015 making the increase rate 74.4% in a year. There are some speculations about the reasons of the raise in figures. However, the main reason is believed to be the restrictions in credit card use which began in February 2014.

Turkish government noticed the possible threats that credit cards bear and in an attempt to curb credit card use,the government began to take actions at the end of 2013. In order to raise awareness, President Recep Tayyip Erdoğan (former Prime Minister), emphasized the need to cutback the use of credit cards in his speeches. In this manner, he aimed to save the economy from being indebted to banks. He warned citizens that international financial powers try to keep Turkey back from developing and asked them to minimize their use of credit cards.

Government Actions: Limitations in Installment Payment

On February 1, 2014, Banking Regulation and Supervision Agency (BDDK) announced the restrictions on credit card instalments. This restriction was an aim to control inflation by controlling consumer spending considering the number of people in debt to banks was over 1 million in 2013, nearly twice the number in 2012. It is also reported that 57 million people have credit cards in Turkey which makes restrictions a noteworthy regulation. Restrictions included both the limitation of credit cards in accordance with holder’s income and how the payment would be rendered. The regulation also increased the minimum payment rate for credit card bills to 30 per cent of the total amount.For card holders that cannot pay their bills 3 times in a row, some sanctions like closing the card were planned. In an aim to help people to plan their payments and to keep them away from being in debt to banks, installment restrictions were planned to be carried out in small, everyday spending such as food and oil. In addition to everyday necessities, the number of installments applicable to furniture, appliances, jewelry and cell phones were also regulated. The regulation seemed to meet expectations as overall spending with credit cards decreased by 2.3% within one month following the introduction of the rule causing retailers to complain about the fall in sales. Although criticized by financial authorities, it is a fact that regulations decreased the use of credit cards since they came into force as BDDK had anticipated. However, the side effects of this regulation have begun to be seen.

Restrictions Affect Personal Loans

In the short term, measures taken for diminishing credit card use seemed to work well, however, as time passes, people could not buy items that they used to buy easily by paying in instalments. January, 2015 figures reveal that restrictions on instalment payments of credit cards have not only been influential in everyday life of individuals, but also forced them to seek new ways to fulfil their needs. People that cannot even afford as small items as cell phones because the number of instalments is limited, head to personal loans to buy them. Regulations that became valid on February 1, 2014 may have freed consumers to be indebted to banks for their credit cards however, now they are face to face with a new challenge. Increasing by 74.4% from 2013 to 2014, personal loans constitute a considerable problem in Turkish economy today.

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