With the new year, things got complicated in the banking sector. While commercial and consumer loan interest rates increased, the high cost prompted citizens to stay away from loans. However, the banking sector, especially the public banks, launched consumer loan campaigns.
In the banking sector, which has a high deposit volume, the monthly consumer loan interest rate varies between 3.37-7.32 percent. According to the data shared by banks on their websites, the annual cost rate, i.e. the annual effective interest cost, has reached 200 percent.
The campaigns implemented in response to the Central Bank’s tight monetary policy aim to increase the use of general-purpose loans, whose annual cost rate including taxes and commissions, i.e. annual effective cost, exceeds 170 percent. Banking sector experts state that the sector has difficulties in the use of personal loans even for salary customers, but only those who need a lot use loans, while spending on credit cards, whose interest rates are fixed despite the increase in policy interest rates, is increasing.
A citizen who takes out a TRY 10,000 36-month term consumer loan faces repayment costs exceeding TRY 21,000 when the interest rate is 3.37 percent and TRY 30,000 when the interest rate is 7.32 percent.
The lowest interest rate is 3.37 percent
Central Bank data show that as of the end of January 5, the consumer loan rate increased by 167 basis points to 63.42 percent compared to the last week of last year. Last week and this week, the consumer loan interest rate continued to rise. Most banks increased their consumer loan interest rates as of the beginning of this week. According to information from banking sector sources, monthly interest rates on 12-month term consumer loans range between 3.37 and 7.32 percent. This reveals that the annual compound interest rate varies between 56 percent and 100 percent. These interest rates do not include BITT and bank commissions. When these costs are added, a very high cost emerges. According to banking sector sources, it is really difficult to get a loan at this high cost. According to the annual cost rate announced by the banks on their websites, that is, the effective annual interest rate, the annual cost rate varies between 80-91 percent when the consumer loan with a monthly interest rate of 3.86 percent is used with 36-month maturity of TRY 10,000, and when the interest rate exceeds 6 percent, the annual cost rate exceeds 166 percent. In some banks, the annual cost rate of the consumer loan was announced as 199.98 percent. In public banks, annual cost rate calculations of 91.4 percent were shared. Insurance costs were not added to all these rates.
Loan growth continued in the first week of the year
Despite all these high-interest rates, data from the Central Bank reveals that banks realized growth in both consumer and commercial loans in the first week of the year. According to the data of the Central Bank, the 13-week annualized loan growth in the sector, adjusted for the exchange rate effect, increased to 26.3 percent as of the week ending January 5. Credit growth at this pace had not been experienced since July 2023. In consumer loans, unadjusted 13-week annualized loan growth increased to 21.51 percent, and in commercial loans, 13-week annualized exchange rate-adjusted loan growth increased to 16.19 percent. Private banks seem to have stepped on the gas in consumer loan growth in the first week. 13-week annualized consumer loan growth, not adjusted for exchange rate effect, reached 47.05 percent in private banks. While public banks’ consumer loans have been contracting for a long time, the contraction slowed down to 12.44 percent in the week of January 5.
Credit card expenditures increased by 9.4 percent
According to the weekly data of the Banking Regulation and Supervision Agency (BDDK), the 4-week loan increases also showed that the increase in retail loans is still very fast. While total TRY loans increased by 3.2 percent in 4 weeks as of January 5, the increase in consumer loans was 3.3 percent. While the growth in vehicle loans was 4.2 percent in the same period, housing loans shrank by 0.5 percent. The commercial loan growth rate increased by 2.1 percent in the same 4-week period. Credit card expenditures grew much faster with 9.4 percent. According to BDDK data, the volume of consumer loans reached TRY 983.47 billion as of January 5, closing the TRY 1 trillion mark. Personal credit cards, on the other hand, continued to increase in volume with TRY 1.17 trillion.
Interest payments may reach TRY 6.65 trillion
Ferda Besli, founder and CEO of Besfin, stated that high interest rates increase the debt service of both companies and individuals and said, “When you take out a commercial loan of TRY 100, you pay back approximately TRY 160-170 at current interest rates. Debt service in consumer loans is higher between TRY 180-200. You need to have a very good cash flow to service this amount of debt. Otherwise, you are very likely to have problems servicing your debt. In summary, it is now necessary to make a very good calculation in credit utilization.” Besli emphasized that according to their calculations if interest rates do not decrease and current interest rates continue in 2024, the interest that individuals and companies will pay could reach TRY 6.65 trillion liras in total. Besli said the following: “It is not possible to pay such high interest rates. Interest rates must come down. There was a 2-fold increase in consumer loans and a 3.6-fold increase in commercial loans. Such high-interest expenses are a significant burden for individuals and companies, and interest rates must be reduced rapidly and interest rates must be reduced by using different tools other than monetary policy in the fight against inflation.”