By Furkan Naci Top
ISTANBUL
"There should be warnings on credit cards like the ones on cigarette packaging".
This is the view of one prominent Turkish psychiatrist this week in a country where 55 million credit cards are in use, making Turkey Europe’s second most-enthusiastic user of consumer credit after England.
In Turkey’s battle to reduce its significant trade deficit, regulations brought in to change how people use their credit cards are beginning to take effect.
Turkey has been fighting against its significant foreign trade deficit – US$5.2 billion in March according to the Central Bank – and people who enjoyed extended monthly installments for their purchases, mostly on imported goods, were not helping to narrow this gap.
In response, the Banking Regulation and Supervision Agency of Turkey introduced new measures earlier this year to curb the use of credit cards for buying goods in monthly installments in a bid to restrain the country´s inflation and current account deficit.
Since February, Turkish consumers were prevented from having installment repayment periods of longer than nine months. Items like food, oil, jewelry and telecommunication purchases can no longer be split into installments.
And although "Stop. Think. Then shop" is one of the warnings issued by Prof. Nevzat Tarhan, a psychiatrist and rector of Istanbul’s Uskudar University, the thinking behind the new credit cards rules is not their tempting effects on shopaholics, but rather a more financial concern.
Kutlug Doganay, an economic analyst with IS Investment, praised the regulations since consumers' "foolish and irresponsible" purchases paved the way to an increase in the foreign deficit.
Doganay said final products, mainly in electronics, are not produced in Turkey and their share in the country’s imports is increasing steadily. "Those sales are paid with loans without creating any income," he added.
According to Central Bank figures, Turkey's foreign deficit decreased 27 percent in February and 30 percent in March compared to the same months in 2013, reflecting the period when the new credit card rules took hold.
The regulation agency appears to have achieved its intended goal. According to Turkish Central Bank data, installment credit card loans decreased by more than 11 billion Turkish Liras (US$5 billion) since the new measures came in to force in February until the beginning of May. Lump-sum purchases with credit cards have increased by 4.9 billion Turkish Liras.
Consumers now seem to be using credit cards for lump-sum payments. According to the Interbank Card Center, in April, such purchases with credit cards rose by 18 percent compared to the same month last year, while installment purchases decreased by 14 percent, the banking regulator said.
Turkey’s Deputy Prime Minister responsible from economy, Ali Babacan, said on Thursday that the increase rate on credit cards is now down to two percent, compared to over 30 percent at the end of 2012. The developments have been viewed positively by the chief economist since they reflect a downwards inclination in consumption and an increase in savings.
"The current conditions will reduce the profitability of banks," said Doganay, "however, the banks compensated for their losses thanks to the latest rise of interest rates".
The Central Bank had decided on a sharp rise in interest rates in late January in a bid to curb the rise of foreign currencies against Turkish lira.
Prof. Tarhan sees the developments and reducing purchases a positive step.
"Impetuous and impatient people can have trouble in managing their budgets since they do not contemplate if the purchase is for their need or desire," says Tarhan.
"Credit cards, since people do not consider them as money, ease their desire for purchase," he adds.
IS Investment analyst Doganay said Turkish credit card holders are mostly responsible users and pay their debts regularly, despite some bad examples, which are more publicized because of the dramatic situation of bankrupted individuals.
He agrees with Tarhan on how much credit cards can be tempting since they enable people to make major purchases with minor payments and unbalance their budget management.
However, not everybody is pleased with installment restrictions.
The head of Turkey’s Small and Medium-Sized Enterprises Association claimed last week that the regulation over jewelry sales is unfair and that jewelry retailers are the biggest victims of the measures.
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