Analysts warn of consequences to Turkish PM’s ‘Stop using credit cards’ remark

ISTANBUL - Hürriyet Daily News

The Prime Minister has suggested not owning credit cards, saying banks collecting too much money thanks to interest rates. 'They could never be satiated,’ he said. DAILY NEWS photo, Hasan ALTINIŞIK

Prime Minister Recep Tayyip Erdoğan told citizens to stop using credit cards, publicly slamming banks for collecting a lot of money from the “poor,” amid analysts’ warnings against the consequences of picking on banks at a time of foreign capital outflow risks. 

“Those credit cards: Don’t have them. If everybody spends as much as they [banks] want, they would not even be able to earn that income. They could never be satiated,” Erdoğan said during a fast-breaking dinner in Ankara July 16. 

During his speech, he particularly picked on one bank, saying it earned annually 600 million Turkish Liras in non-interest income – commissions and fees – without specifying a name. 

“Meanwhile, total [non-interest] revenues of [state-owned banks] Ziraat, Halk and Vakıf are 600 million liras. Do you see how big the game being played is?” he asked.

High commissions

The high fees banks charge have attracted a lot of attention from consumers and unions, and the government has taken a step with a new law obliging banks to offer a fee-free credit card option and raising the penalty on banks that try to earn undeserved income through commissions to 5 million liras.
However, Uğur Gürses, an economics journalist at daily Radikal, said he thought the reason behind the prime minister’s scolding was not people using the cards for daily shopping, but rather that he was furious that citizens are using credit cards as a borrowing instrument.

“I think the prime minister sees the situation as banks striping citizens,” he told the Hürriyet Daily News in a telephone interview July 17, adding that the way to combat this is not to say stop using credit cards. “If one would take measures that increase the competition between banks instead of complaining about this, credit card commissions would drop. Secondly, the government could ensure more conscious usage of credit cards by the citizens.”

“If the prime minister is suffering from this issue a lot, there are state banks under his authority, he can instruct these banks and request decreased commissions,” he also said in separate interview with daily Hürriyet. 

The levels of credit card utilization in country have been soaring rapidly. While 43 million Turkish citizens were using credit cards in 2008, the number had jumped to 56 million by the end of the fourth month of this year.

Indebtedness rose in parallel with the utilization rate, and even more rapidly. The total amount of debts under follow-up reached 25.6 billion liras as of March after years of double-digit annual rises. Even in first three months of 2013, the rate of increase was 9.2 percent compared to the end of 2012. 
The revenues gained by the Turkish banking sector from service charges in 2012, which amounted to 14.8 billion liras, were enough to cover banks’ staff expenses, which cost 14.2 billion liras, according to figures from the Banking Regulation and Supervision Agency (BDDK).

Outflow risks

During his remarks on July 16, the prime minister repeated his claims that ongoing “plots” in the region aimed to weaken Turkey, once again accusing an “interest rate lobby” of supporting these plots. The prime minister’s public criticism of the private banking sector, the strong point of the Turkish economy, is a risky business amid the ongoing capital exit from the country, which has been recently derailed from its stable track.

Although the country hasn’t faced massive outflows yet, fears the U.S. Federal Reserve will change its asset purchasing program, which would pull down the lira steeply down, have forced the government to conduct delicate financial management.