Impact of Turkish Banks Warning to Close Credit Cards
ISTANBUL – In a preemptive move reflecting the increasing vigilance on financial stability and compliance with the stringent economic policies pursued by Turkey amidst its economic war on inflation and the depreciation of the lira, Turkish banks issued stern warnings to their customers about using credit cards in specific transactions, such as purchasing gold, foreign currency, and encrypted assets, especially those not based on “reasonable” justifications, beginning early February.
The warnings from Turkish banks come as part of a series of measures aimed at curbing the rise in inflation rates, which reached 65% on an annual basis, according to the Turkish Statistical Institute, and reinforcing financial discipline. The possibility of closing credit cards for traders who violate these policies has also been suggested.
These warnings demonstrate the banking sector’s determination to monitor spending through credit cards and reflect a strict policy against using these financial tools in investment transactions, emphasizing the fundamental role of credit cards as a means to meet consumers’ daily and essential needs.
Alarming Figures
In light of these measures, the Banking Regulation and Supervision Agency shed light on the significant increase in the use of individual credit cards, reaching 1 trillion 172 billion Turkish liras during the first month of the current year 2024, a 155% increase compared to the same period last year, which stood at 459 billion liras.
The volume of individual credit card usage in Turkey reached 1 trillion 172 billion Turkish liras during February 2024 (Aljazeera)
The agency had announced in August 2023 the suspension of the possibility of paying credit card payments in installments for travel purposes abroad, such as flights, travel agency fees, and accommodation, in order to reduce the outflow of foreign currencies from the country, after Turkish spending abroad in the first half of last year 2023 reached 3.17 billion dollars, an 84% increase compared to the same period in 2022.
According to the statistics of the Turkish Banks Association, Turkey witnessed a noticeable increase in the number of individuals using personal credit cards during the year 2023, with this number increasing by 1.8 million people, reaching a total of 39.3 million users.
Furthermore, the average monthly usage of personal credit cards in Turkey amounted to approximately 63,700 Turkish liras “2080 dollars”.
It is worth mentioning that the number of individuals subject to legal actions due to debts on their personal credit cards reached 1.1 million people during the same year.
Consequently, it seems that there are significant challenges facing individuals who have not settled their credit card debts, with their number reaching 3 million 836 thousand 53 individuals by the end of October 2023. Additionally, there are 2.1 million people still indebted with their credit card debts, which have been sold to asset management companies.
Proposed Solutions
In this context, economic experts believe that there are key areas that can be adjusted to reduce the excessive use of this financial tool, such as changing interest rates, imposing restrictions on installment options, and adjusting the available credit limits for consumers.
Reports from Turkish media indicate ongoing discussions about reducing the number of installments available for purchases using credit cards, with the possibility of completely canceling this option in certain sectors, in order to encourage responsible consumption and avoid accumulating debts.
The Central Bank of Turkey announced that it will not make any changes to the maximum limits for interest and commissions at the present time (Reuters)
Additionally, the option of reducing the credit limits for users and increasing the minimum monthly payments is being considered, in a move aimed at enhancing individuals’ financial stability and reducing the risks resulting from excessive borrowing.
As for the interest rates of credit cards, the Central Bank of Turkey clarified that it will not make any changes to the maximum limits for interest and commissions at the present time, establishing these rates based on specific criteria, including the deposit interest rate and monetary policy, reaffirming the bank’s approach to balance between promoting savings and avoiding excessive consumption.
According to the second financial stability report for 2023 issued by the Central Bank, an increase in the use of credit cards was observed after the rise in interest rates on consumer loans, prompting citizens to resort to credit cards as a means of financing.
Key Implications
On the other hand, economic researcher Abdel Halim Al-Abbadlah says that the warnings from Turkish banks to their customers come in light of official statistics indicating a tangible increase in the number of users of personal credit cards, in addition to the increase in the average monthly usage to levels exceeding the minimum wage.
He considered it a sound step in line with the stringent economic policies currently adopted by Turkey, as it will work to reduce the high consumer demand, thereby pushing for a reduction in inflation rates. However, the normal state of countries does not allow for such warnings to customers who have a commercial relationship with banks governed by official laws.
The number of individuals who have not settled their credit card debts has exceeded 3 million in Turkey (Shutterstock)
Al-Abbadlah pointed out that the deterioration of the lira exchange rate and the rise in inflation rates force citizens to seek other means to continuously purchase their basic and secondary needs, adding that the consumer culture of the Turkish people has gradually shifted towards an increasing reliance on credit card usage.
He also noted the increase in the percentage of traders in digital currencies within Turkey in recent years, considering it as not creating a real economy and building large gaps between citizens and economic development efforts.
He also speculated that banks may apply their warnings to the most influential customers, while turning a blind eye to customers with large capitals or those committed to repayment, if there is no official obligation from the central bank to close credit cards for all customers.
