A More Supervised Credit Era Begins in Turkey

Too much public spending, excessive reliance on domestic demand and loose monetary policy. These are the points that IMF implied about Turkish economy within its global economic outlook report published recently. In addition, for the past few years, the country’s technocrats have forewarned of rates of loan growth running at an alarming average of about 30% a year. As might be expected, loan growth is the main underlying cause of macroeconomic imbalances that form non-ignorable downside risks.

Here are some quotes from the IMF:

In 2012, Turkey achieved a welcome reduction of imbalances while maintaining positive growth. In 2013, growth is accelerating and rotating back to domestic demand. With imbalances still high and the global financial environment less forgiving, reducing these vulnerabilities should be the overarching focus of short- and medium-term policies.

As the meteoric loan growth in Turkey comes under fire, we saw some harsh but constructive self-criticism made by the government. And, finally, banking watchdog, Banking Regulation and Supervising Agency, took a enervating step for personal loan growth, to take the it under control by limiting credit card borrowing limits.

Here is the new system had a coverage in Turkish media:

Credit limits for new cardholders will be capped at twice their monthly income for the first year, subsequently increasing to a maximum of four times income. Existing credit limits won’t be affected – until cardholders ask for increases. If people fail to make their minimum payments three times in a row, they will be cut off from new lending until they pay their debt in full.

Personal Loan Growth in Turkey

The chart above shows the comparison of personal loans and GDP growth rates in Turkey, starting from end of 2006, assuming both rates equal to 100 at that time. Clearly, we see personal loans grew 17 times more that GDP did during the time.

Wondering what’s gonna happen next.