Hike in consumer loans may prove catastrophic

ISTANBUL - Anatolia News Agency

Consumer loans have amounted to 172 billion Turkish Liras. Citizens use personal loans and credit cards mainly to solve their cash problems rather than happy shopping like illustrated in this picture, according to accountants chamber data. Hürriyet photo

Consumer loan debt in Turkey has increased 154 percent in the past 5 years, reaching a total of some 172 billion Turkish Liras, according to a recent report from the Istanbul Chamber of Certified Public Accountants (İSMMMO).

Citizens use personal loans and credit cards mainly to solve their cash-flow problems, data say.

Demand for automobile loans was relatively stable but the number of home loans, with an average 10-year credit period, has boomed in the last five years. Credit card debt has increased more than twofold to exceed 58 billion liras in the same five-year period, while overdraft accounts doubled to 4 billion liras.

One in every four credit card debtors cannot pay back their debts, and if a household’s income is reduced, it is inevitable that the situation will get worse, İSMMMO President Yahya Arıkan said in the report.

‘Debts paid off with debts’

“The significant increase in consumer loans means that debts are being paid off with new debts. The low consumer appetite for vehicle loans versus home and consumer loans is worrisome,” Arıkan said.
The rate of increase in consumer loans was 22.9 percent in 2008, 12.3 percent in 2009, 38.4 percent in 2010, and 30.5 percent in 2011. Consumer loans increased 154.1 percent, from 67.6 billion liras to 171.8 billion liras, between the fourth quarter of 2007 and the first quarter of 2012.

Consumer inflation increased between 8 percent and 10 percent annually in the same period, and economic growth rates were between 5 percent and 8 percent per year, while the annual increase in consumer loans exceeded 30 percent, the report said.

Credit card use has increased alarmingly, according to the İSMMMO report. Credit card debt, which was at 27 billion liras at the end of the last quarter of 2007, had hit 58 billion liras as of the end of March 2012 -- a 114 percent rise. The rate of increase in credit card use in each of the last four years was 25 percent, 8 percent, 19 percent and 27 percent respectively.

“Home loans have simply ramped up in the last 5 years,” the report said, adding that demand for vehicle loans only increased by 20 percent in the same period.

The demand for home loans, which was at 32.3 billion liras in 2007, had shot up to 75.4 billion liras as of the end of March 2012. Data show that the share of mortgage home loans in the consumer loans market has significantly increased. Home loan users are burdened with mortgages for an average period of 10 years, which is too long and may open the door to catastrophic consequences for debtors in the event of an adverse economic situation.