Consumer loan interest rates rise again: Hit 6 percent

The Central Bank of the Republic of Turkey (TCMB) announced its interest rate decision at the Monetary Policy Committee (PPK) meeting, setting it at 50 percent. The Central Bank's decision to announce it in this direction caused banks to increase their loan interest rates. 

According to a report by Şebnem Turhan from Ekonomim, 

The Central Bank's 500-basis-point interest rate hike last week was immediately reflected in loan interest rates. While banks raised consumer loan interest rates by 40-200 basis points, 700-basis-point hikes also occurred in commercial loan interest rates. Monthly levels of 6 percent for consumer loans and annual levels of 59-75 percent for commercial loan interest rates have now become normalized. The Central Bank imposes growth limits on banks for consumer and commercial loans. In addition to consumer and auto loans, housing and auto loan interest rates also started the new week with increases.

BANKING SECTOR IMPLEMENTS ADJUSTMENTS

The area where the Central Bank's tight monetary policy is always reflected without delay is loan interest rates. Immediately after the Central Bank raised the policy rate from 45 percent to 50 percent at the March Monetary Policy Committee meeting, the banking sector made adjustments to all loan interest rates. According to information provided by banking sector sources, commercial loan interest rates, which were at the 52 percent level in some banks, started the new week at the 59 percent level. This 7-point increase indicates that commercial loan interest rates have increased by 13.5 percent in almost a week. According to information on some banks' websites, rates reaching up to 75 percent in commercial loan interest are striking. Banking sector sources state that commercial loan interest rates are predominantly between 59-65 percent on average.

At the beginning of March, the Central Bank reduced the monthly growth limit for banks in commercial loans from 2.5 percent to 2 percent. However, the limits on commercial loans do not end there. Although companies accept high commercial loan interest rates, according to information provided by banking sector sources, in addition to the 2 percent monthly loan growth limit, which varies from bank to bank, there are also restrictions applied by bank senior management. In some banks, commercial loan requests between 500 thousand and 1 million cannot be approved without consulting the bank's senior management, while branches can only decide on loans up to the 200-300 million lira level.

BOND SECTOR IS GROWING

While banks' appetite for commercial loans is quite low, it is not expected that the real sector will increase its demand at these interest rates. According to information provided by banking sector sources, companies in very tight situations apply to loan channels, while companies that can do so turn to bond issuance. The bond sector, which was quite weak, is growing rapidly due to the effect of the recent tightening. While TL-denominated bond issuances were only 12 billion lira in 2022, when loan channels were open and interest rates were low, they rose to 229 billion lira in 2023. In the first two months of 2024, bond issuances reached 127.3 billion lira. The total TL bond stock has also exceeded 385 billion lira.

Banks also raised non-subsidized agricultural loan interest rates. While the farmer loan interest rate, which was 47 percent in some public banks, rose to 51 percent, it reached up to 60 percent in some private banks.

CONSUMER LOAN INTEREST RATES RISE AGAIN

The banking sector had already increased consumer loan interest rates just last week. This new week was also entered with an increase. While the consumer loan interest rate of a private bank, which was 4.3 percent last week, rose to 6 percent this week, the consumer loan interest rate, which was 4.94 percent in some public banks, started the new week at 5.34 percent. While an increase of nearly 2 points was made in some banks, 0.5-point increases were seen in others. In addition to consumer loan interest rates, there are also increases in housing and auto loan interest rates. In some public banks, the housing loan interest rate rose to 4.29 percent. Interest rates on auto loans, which have a monthly growth limit of 2 percent, also rose sharply last week and were increased from 3.99 percent to 4.29 percent; this week, auto loans are being issued at a minimum level of 4.5 percent.

WHEN CREDIT CARD USAGE DOES NOT SLOW DOWN...

Monetary tightening is not reflected in credit card interest rates. The Central Bank only regulated the increase of interest rates for cash advances from credit cards and overdraft accounts to 5 percent. However, the credit card interest rate is still at 3.66 percent, and the late interest rate is at 3.96 percent. These rates also result in the rate of increase in credit card usage not slowing down.

According to Interbank Card Center (BKM) data, the total payment amount made with credit cards, debit cards, and prepaid cards in February increased by 152 percent compared to the same period last year, reaching 1.01 trillion lira. BKM announced its data for February. Accordingly, as of February, the number of credit cards in Turkey rose to 120.4 million, the number of debit cards to 191.2 million, and the number of prepaid cards to 91.8 million. Compared to February of last year, there was an 18 percent increase in the number of credit cards, an 11 percent increase in the number of debit cards, and a 23 percent increase in the number of prepaid cards. The total number of cards increased by 15 percent, reaching 403.4 million. While 843.1 billion lira of card payments were made with credit cards, 150.3 billion lira was used with debit cards, and 19 billion lira with prepaid cards. The growth rate in payments was 166 percent for credit cards, 94 percent for debit cards, and 184 percent for prepaid cards. Card payments made over the internet increased by 177 percent compared to the same period last year, approaching 294 billion lira. The share of card payments made over the internet in the total was 26 percent.