Turkish bank shares hit by credit card plan

ISTANBUL – A proposed law to cap sky-high credit card interest rates in Turkey has triggered investor fears about bank income and is already hurting their share prices. Leading lenders Yapi Kredi, Garanti, Akbank and Is Bank would be hit the hardest, as they have the highest exposure. Ata Invest analyst Sevda Sarp said credit card balances accounted for 21 percent of Yapi Kredi’s total loans as of the end of the first quarter, followed by Garanti at 13 percent and Akbank at 11 percent. «The law will also impact the second-tier card players as they have to bear higher costs for promoting their cards,» Sarp said. However there is some doubt among analysts that the proposal will become law, given the levels of support from the government, the central bank and the banking sector watchdog. «We attach a low possibility for the implementation of this proposal. Our understanding is that the proposal is an individual initiative,» said Sarp. Banking shares have fallen sharply since Justice Commission Chairman Ahmet Iyimaya last week proposed a rate cap of twice the monthly deposit rate of the central bank. Based on current levels, that would lower the rate which card providers could charge to 2.7 percent a month from 4.5 percent. Annual inflation in Turkey, which is seeking European Union membership, is currently around 10 percent. The Istanbul Stock Exchange banking index has tumbled more than 6 percent since the proposal was presented to parliament last Thursday. The move reflects growing unease about the sharp growth in credit card use in recent years on the back of aggressive marketing campaigns and against the background of buoyant economic growth since a deep 2001 financial crisis. Fueled by a young and increasingly affluent population, retailers and banks are promoting credit card use even for basic purchases, with prominently displayed campaigns in malls, sport clubs, restaurants and in newspapers and on television. According to data from the Interbank Card Center, the number of credit cards in Turkey has surged from just under 14 million in 2001 to 37.3 million in 2007. It ranks third in Europe in terms of the number of cards. Turkey’s population stands at 70 million and its per capita income surged to $9,333 in 2007 from $7,500 a year earlier, still lagging well behind European Union levels. Populism Oyak Securities analyst Alpay Dinckoc said developments on the political and economic front in Turkey were also forcing the government to push ahead with populist measures on all fronts. «What they are trying to do is basically a little populist measure. There are some people who got stuck in a mess but this solution will not be very effective,» he told Reuters. Under the consumer draft law, annual credit card fees will be abolished and an issuing charge introduced and both fee income and interest income would come under attack, he said. Investors are already worried by government moves to loosen fiscal policy since Turkey was freed from the discipline of a $10 billion International Monetary Fund standby accord which expired earlier this month. Those moves, in the face of a slowing economy, coincide with the ruling Justice and Development Party (AKP) facing a threat of being outlawed in a Constitutional Court case based on charges of anti-secular activities. The party rejects the charges. Analysts say the government has begun easing fiscal policy to win over voters in case the Islamist-rooted AKP faces an early parliamentary election. One concern is that consumption levels will be hit as banks forgo credit card campaigns. Credit card transaction volume in 2007 jumped 31 percent to 142 billion lira ($114 billion) and surged another 36.3 percent in the first quarter to 40.6 billion lira ($32.5 billion), despite a slowdown in economic growth. The spending growth comes amid an explosion in the number of big shopping malls in the country’s main cities, particularly Istanbul. Migration from smaller cities to larger ones as new job opportunities arise have also boosted spending. The chairman of the TUDER consumer association welcomed the proposed bill, saying it was inevitable given the sharp rise in indebtedness due to ill-informed purchases by consumers, who were using credit cards for regular daily purchases. «This is a social problem which has been stored up and is ready to explode. The government’s duty should not just be bill proposals… it must pursue policies that prevent consumers from becoming excessively indebted,» TUDER’s Engin Basaran said.