Major decline in installment spending: 109 billion TL decrease in the last three months

As the Turkish economy slows down under the impact of high interest rates and credit restrictions, installment spending on credit cards is experiencing a historic decline.

The outstanding balance of installment credit card debt, which peaked during the local election period, has seen a sharp decline over the last three months.

According to Central Bank (TCMB) data, the installment credit card debt balance, which stood at 787.8 billion TL on April 5, 2024, fell to 678.8 billion TL on July 26. In this approximately three-month period, the balance decreased by 13.8 percent, amounting to a decline of 109 billion TL.

INSTALLMENT DEBT BALANCE FELL TO 517 BILLION TL

According to a report by Emre Deveci from Sözcü newspaper, during this period, the installment debt balance on individual credit cards fell by 13.7 percent from 599.9 billion TL to 517.8 billion TL, while commercial credit card debt also fell from 187.9 billion TL to 161 billion TL.

In the TCMB data dating back to December 2005, such a sharp decline in the installment credit card debt balance in such a short time has not been seen before.

Credit card installment spending, which remained high after the elections due to expectations of exchange rate and interest rate hikes, has declined since the elections. 

While there was no exchange rate surge after the elections, credit card interest rates did increase. 

Immediately following the local elections, on April 6, 2024, the TCMB raised the maximum interest rates to be applied to credit card transactions. With this decision, the monthly interest rate applied to the remaining portion of credit card debt after the minimum payment was increased from 3.66 percent to 4.25 percent. The maximum late payment interest rate on credit cards was also raised from 3.96 percent to 4.55 percent.

RISE IN LATE PAYMENT INTEREST

The late payment interest rate for foreign currency credit card debt was also increased from 3.23 percent to 3.70 percent.

Most recently, with a decision taken on July 31, 2023, the BRSA (BDDK) had removed the installment option for airline, travel agency, and overseas accommodation expenses.

On the other hand, reports had surfaced in the press that banks had reduced their customers' cash advance limits and the number of installments on credit cards in March.

In general, a slowdown in the growth of card spending has also been notable in recent months. While the annual growth of the monthly average of weekly card spending reached 135.5 percent in February, it has since fallen to 80.8 percent in July.

News Source: 12punto