Turkey’s debt-fuelled economic revival continues

Turkey’s debt-fuelled economic revival continues
By Akin Nazli in Belgrade July 5, 2020

Credit card and debit card payments in Turkey slightly declined to a value of TRY20.1bn ($2.9bn) in the country’s fourth ‘post-lockdown’ week (ending June 26) from TRY21.2bn a week ago, according to latest data from the Central Bank of the Republic of Turkey (CBRT).

Turkey officially confirmed its first coronavirus (COVID-19) case on March 11 and TRY21.3bn was recorded in the week ending March 13 when COVID-19-driven stockpiling occurred.

However, initial measures to curb the virus outbreak only arrived with a two-week lag.

As a result, the first impact of the health and economic emergency on card payments — a sign of real consumption in the country — was felt in the week ending March 27 when the total value of such transactions fell sharply to TRY13.5bn.

The lowest volume was registered in the week ending April 24 at TRY13bn.

Turkey reopened restaurants and beaches and ended travel restrictions on June 1 after reopening shopping malls on May 11.

In April, the government launched a campaign to delay repayments on credit card and other bank debts for a three-month period. Private lenders have joined the state lenders in conforming with this.

The impact of the delayed repayments on consumer spending is awaited. New delays on top of already delayed repayments could weigh on private lenders’ moribund hopes for profitability.

Finance Minister Berat Albayrak stated on April 12 that state lenders had postponed TRY60bn worth of loan and credit card debt repayments, while he called on private banks to also offer delays. Eventually, they did.

In April, 38,000 Turks used a credit card for the first time. There were 71mn credit cards and 168mn bank cards in the country of 83mn people as of end-March, according to latest data from the Interbank Card Center (BKM).

Household consumption in Turkey in the first quarter stood at TRY610bn, or 57% of overall GDP, in current prices. Card payments amounted to TRY249bn, equivalent to 41% of household consumption in official GDP.

In the recorded second quarter to date (from April 1 to June 26), card payments totalled TRY217bn, the lowest figure since Q1 2019. The remaining four days are awaited for ascertaining the overall Q2 2020 figure.

Foreigners’ card expenditures in Turkey amounted to TRY21bn in Q1, according to data by the Interbank Card Centre (BKM). The figure stood at TRY119bn in 2019.

Higher card transaction volumes could also be a sign of inflation.

As of June 26, the credit card debt stock of consumers rose to TRY113bn from TRY110bn in the previous week, according to separate data from banking watchdog BDDK. The figure stood at TRY103bn as of May 15.

The volume of consumer loans extended by Turkish banks also moved up to stand at TRY578bn in the week ending June 26 from TRY565bn a week earlier. The figure stood at TRY465bn at end-2019.

Housing loans jumped to TRY231bn as of June 26 from TRY223bn a week ago (TRY212bn as of June 5) while car loans inched up to TRY8.3bn from TRY8bn.

In June, vehicle sales in Turkey jumped, as expected, by 66% y/y to 70,973 units, highest level since December, after contracting 15% y/y and 2% y/y in April and May, respectively, according to data from the Automotive Distributers Association (ODD).

Significant jumps in home and white goods sales are also expected in the month thanks to the latest cheap consumer credit campaigns that were launched at the beginning of June.

BDDK also reported that the total Turkish lira loan volume climbed to TRY2.1 trillion as of June 26 from TRY2.07 trillion from the previous week. At the end of 2019, total lira loans volume was TRY1.68 trillion.

Commercial loans, on the other hand, slightly rose to TRY1.41 trillion from TRY1.39 trillion. The figure stood at TRY1.08bn at end-2019.

Weighted average interest rate on consumer loans fell to 12.87% as of June 26 from 12.93% a week ago (8.27% as of April 24 and 16.1% as of April 3) while mortgage loan rates fell to 9.01% from 9.06% and commercial loan rates fell to 9.8% from 9.99%.

Official CPI inflation slightly rose to 12.6% in June from 11.4% in May.