Turkish banks could face further restrictions on consumer loans
Turkey’s banking regulator could further restrict consumer borrowing as it tries to control high levels of inflation, potentially squeezing the margins of the country’s private banks.
Lower limits on credit cards and personal loans are possible, as is increased risk-weighted asset requirements for general purpose and auto loans, according to Sevgi Onur, vice-president and banking analyst of the investment company Seker Invest. At the end of September, the Banking Regulatory and Supervisory Authority lowered the maximum duration for personal loans by over 50,000 lire.
“It is highly likely that we will see some of these measures,” Onur said. “Concerns about stubbornly high inflation and the current account deficit could force the regulator to act. “
The central bank has more than doubled its interest rates since May 2020 to 18% as it unwinds support measures for the pandemic and fights against inflation which reached 19.58% in September. The country’s target rate is only 5%.
Exposure to consumer loans
Turkish private banks are more exposed to consumer loans than their government-controlled rivals, figures from S&P Global Market Intelligence show. About 30% of loans granted by QNB Finansbank AS, Turkiye Garanti Bankasi AS and Yapi ve Kredi Bankasi AS at the end of the second quarter were aimed at retail borrowers, compared to around 20% at Türkiye Halk Bankasi AS, or Halkbank.
“Private and foreign banks will be more affected if the regulator imposes the aforementioned restrictions on consumer lending,” Onur said. Onur believes the regulator could lower the limits on consumer credit cards and income-tested personal loans. Currently, the credit card limit is 5 times a person’s monthly salary, while monthly general purpose loan repayments should not exceed 60% of monthly income.
The regulator declined to comment on possible lending restrictions when contacted by Market Intelligence. This could limit the size of retail loans and impose additional reserves for extending retail lending above a certain level, Bloomberg News reported last month.
Bank reserve requirements to support lending have been used extensively as an adjustment tool by the regulator to facilitate and stimulate loan growth during the extraordinary pandemic conditions of last year.
According to Serhan Gok, head of equity research at Istanbul brokerage firm Yatırım Finansman, this tool is only likely to be used again if the growth in personal loans continues at a rapid pace with repercussions. evident on Turkey’s inflation, current account deficit and macroeconomic balances.
Total outstanding loans to individuals Turkish banks grew by 42% in 2020, according to data from Yatırım Finansman. In 2021, until September 10, the growth rate was 11%. Gok said a temporary increase in retail lending growth is to be expected given one-off factors such as the reopening of the economy.
Total loans to individuals and businesses of Turkey’s largest banks – Halkbank and Türkiye Vakiflar Bankasi, state-controlled, and the private bank Garanti; Türkiye Is Bankasi AS, or Isbank; Yapi Kredi; QNB Finansbank; and Akbank TAS – increased by 10% in the first six months of 2021, according to figures from Market Intelligence. This follows a 32% increase in 2020 boosted in particular by big jumps at Halkbank and Vakiflar.
The profitability of Turkish banks in 2020 rebounded from a low in 2019. The overall return on average equity increased to 11.67% from 11.06%, but down from 15.46% in 2015.
As of October 18, $ 1 is equivalent to 9.31 Turkish lira.