Turkish gov’t to ease consumer loan requirements to revive demand ahead of elections

Turkish gov’t to ease consumer loan requirements to revive demand ahead of elections

ANKARA

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The Turkish government plans to ease consumer loan conditions to revive the declining domestic demand just ahead of the upcoming elections, according to a report in daily Hürriyet.

n this vein, banking watchdog BDDK has been asked to prepare a revision to extend payment terms in consumer loans from 36 months to 48 months, sources said. 

The payment terms in automotive loans are also planned to increase from 48 months to 60 months. 

The Turkish economy expanded 2.3 percent year-on-year in the first quarter of 2015, slowing from a 2.6 percent increase in the previous period. The moves are planned to revive economic growth, according to sources. 

Such moves, however, contradict a number of measures which have been effective under the leadership of former Deputy Prime Minister Ali Babacan since 2014 to limit the domestic demand and the current account deficit. 

The planned revisions in loans will deepen the country’s current account gap problem in a period when global economic risks have been rising. 

The first signs of the changes in loans were given by new BDDK head Mehmet Ali Akben in a speech around 10 days ago. 

“We put several issues in the financial stability committee under the scope… We questioned whether the number of installments in credit cards or consumer loans could be eased… When the number of installments is increased, especially in imported mobile phones or luxury goods, the current account deficit will, however, soar… We therefore need to find a common, manageable point,” said Akben, as quoted by daily Hürriyet. 

Credit card and personal loan debt has reached alarming levels, as the number of people who were not able to pay their personal loan or credit card debt surpassed 1 million in 2013, while the amount was around 698,000 in 2012, according to a report from the Turkish Banks Association (TBB).

With the measures, the share of consumer loans in total loans decreased by 20 percent, according to sector data.