Turkish households lose their appetite for spending on loans

MUSTAFA SÖNMEZ - mustafasnmz@hotmail.com

Turkish families’ dependency on credit card spending has been slightly decreased compared to last year, according to official figures.

Turkish society was introduced to features such as using consumer credit from banks and loans through credit cards mostly after 2003, with the phenomena quickly becoming a fixture in our lives.

The Turkish economy rapidly borrowed externally as financial corporations sourced nearly one-third of their resources as credit for consumer families.

This lending boosted the domestic sale of houses, vehicles and durable and indurable products, mainly white goods. To put it in another way, the borrowing by households became one of the building blocks of the growth paradigm based on the domestic market that went on to soar from year to year. From September 2004 to September 2014, the loan stock of total households increased nominally at a rate of 1,306 percent. However, a recalculation of this for inflation shows that there was an increase of 48 times in real terms. Those who borrowed one in 2004 are now borrowing five. The total credit used or the debt stock has increased almost five-fold.

However, in the past 12 months when the economy stagnated, there has also been a significant slowdown in consumer loans. The dimensions of the consumer loans that appear in the form of consumer credits as house, vehicle and general-purpose personal finances, and as cash credit through credit cards, exceeded 345.5 billion Turkish Liras (155 billion dollars) as of September 2014, but when inflation is taken into account, there was a 1 percent decline compared to the previous year. This means a decrease in demand for an economy that is growing based on the domestic market and also means a slowdown in its motor of growth.

According to Banking Regulation and Supervision Agency (BDDK) and the Undersecretary of Treasury data, the cumulative debt of households nominally increased 8.1 percent to 345.5 billion liras in the 12 months between September 2013 and September 2014. However, when the 8.9 percent consumer price index is taken into consideration, it can be seen that the debt stock of households in reality have fallen around one point. In other words, households have lost their appetite for borrowing in the past 12 months starting in September last year. They have not increased their debts; they have opted to reduce them.

Vehicles first to be avoided

The type of bank loan consumer families avoided the most was automobile or vehicle credits. The demand for vehicle credits that constitute only around 2 to 3 percent of the total debt stock of households went down rapidly. In the past 12 months, vehicle credits decreased 17 percent. When inflation is taken into consideration, the decline is 24 percent.

Demand for vehicle credits not only declined in bank loans but also in loans that were offered by the finance agencies of auto sale firms. As a result, a significant drop was experienced in car sales. Turkey’s automobile and light commercial vehicles total market went down 19.2 percent to 473,000 vehicles in the January-September 2014 period compared to the same period last year. Car sales went down 19 percent to 367,000 in the same period year-on-year. The light commercial vehicle market also decreased 20 percent to 107,000 units in the first nine months of 2014 compared to the previous year.  

Escape from the credit card

With interest rate hikes and administrative restrictions introduced, borrowing through credit cards also fell significantly. Credit cards debt stock, which was around 82 billion liras in September 2013, went down 10 percent in September 2014 to 74 billion liras. When inflation is taken into account, the decline is 17 percent. Those who borrowed through credit cards refrained from adding to their debt as a result of increasing interest rates. They also reduced their credit card debts by using personal finance credits which are consumer loans. 

Thus, the drop in the burden on credit cards occurred also because people were covering them with personal finance loans which cost less because of lower interest rates.

Transferring high interest rate credit card debt into consumer loans naturally increased the debt stock of consumer credits. In household borrowings, personal finance credits, which correspond to the biggest slot at 44 percent, increased rapidly.

With this method, which means paying a debt with a debt, the debt stock of credit cards decreased 8 billion liras nominally in 12 months, while the stock of general purpose loans went up from 123 billion liras to 145 billion liras, an increase of 22 billion.

Careful in mortgages

While they did not eschew borrowing for houses, consumer families acted much more carefully in comparison to previous years.

In the past 12 months, the mortgage stock went up from 106 billion liras to 120 billion liras, increasing 13 percent nominally, but when calculated with net inflation, one sees that the real increase is 4 percent.

Mortgages to buy houses went up especially in the third quarter of 2014, and as a result of this, mortgaged house sales when compared to the second quarter went up 28 percent. House sales, which went down rapidly in the first two quarters of the year, increased in the third quarter. As a result, the number of houses sold in the first nine months of the year exceeded 831,000 units. In the first nine months of 2013 though, 862,000 units were sold. The drop in sales for the first nine months stayed at 3.6 percent.

The decline in house sales has especially been seen in mortgaged house sales. With the increase of interest rates, the demand for mortgages decreased, pulling down mortgaged house sales. During the January-September 2013 period, while mortgaged sales neared 361,000 units, they fell to 275,000 units in the same period of 2014, recording an almost 24 percent decrease.