The burning question has been how the Banking Supervisory would regulate the consumer loans with some tightening tools. Yesterday, the draft for new regulations were revealed on consumer loans and credit cards with the intention of slowing general purpose lending.
Some expected restrictions are listed below:
- No layaway while purchasing food and gas,
- Length of layaway plans limited to 6 months while purchasing electronics, jewellery,
- Length of layaway plans limited to 12 months while purchasing white goods, furnitures,
- New restrictions for consumer loans used in purpose of purchasing cars, the plans could be 48 month-length at most,
- All consumer loan plans excluding mortgages will mature in 36 months at most.
Now let us just get focused how these will shape the macro view.
As mentioned many times before, Turkey Current Account Deficit is serious threat for the economy mainly caused by the saving gap. For three years, Turkish policymakers have organized efforts for applying pressure on consumer loans to reduce consumption as CAD had widened. For a reliable macro outlook, this initiative was needed but firstly we need to observe the market reaction.
Taking a deeper look, policymakers are happy with a moderate pace growth, even ahead of elections from four months now. Actually, this unusual approach is reducing the political risk.
Of course, some industries will be hurt that are most depending on consumer loans because of the restrictions on consumer spending to stay in effect as mentioned above. The first industry spring to mind is banking of course. These regulations will in some way hurt the consumer loans but the banks will reduce the risk of maturity mismatching, have asset quality to be improved, and the liquidity. In the eyes of market, these all are already priced in and measures have been better than feared so far.
In my opinion, car sales will be seen falling due to shortened layaway plans because it may force consumers to delay purchases. Notwithstanding, in the short-run car sales may be boosted until the new regulations come into force.
This was a good sign prompting if policymakers intend to cool down the economy. More macro-based measures to be taken should be expected soon.