ISTANBUL: Turkey introduced measures yesterday to try to control rampant consumer loan growth and lift its domestic savings rate from historic lows, another front in its battle to reduce a gaping current account deficit.
The regulations introduced by the BDDK banking watchdog focus on trying to curb debt-financed consumption by making credit card loans more costly for lenders and tightening spending limits for consumers.
Turkey has seen explosive consumption-led growth over the past decade, with per capita wealth almost tripling in nominal terms, but its low savings rate and huge energy deficit have made it heavily dependent on volatile foreign capital flows.
Addressing the imbalance has become all the more urgent with the US Federal Reserve expected to begin tapering its massive stimulus programme in the coming months, a move which would curb the flow of cheap money Turkey has been relying on to finance its current account deficit.
The new measures include higher risk weightings for credit card loans, making them more costly by forcing lenders to make higher provisions. Consumer financing firms, which offer loans for high-ticket purchases such as cars or houses, will be subject to the same reserve requirements as banks.
Credit card limits for consumers are capped at four times monthly income under the new regulations, which take effect immediately, while the minimum monthly payment threshold has been increased and penalties for default tightened. Credit card and personal loans have increased sharply, according to the BDDK, contributing to a rise in total loans to 1 trillion lira ($500bn).