The head of Türkiye's Banks Association on Tuesday expressed expectations for more restrictive measures on explosive credit cards, which grew three times the total loans in 2023, to rein in inflation.
Credit cards grew by 159% as of last year, according to the banks association data, compared to 54% growth in total loans.
"It is evident that there is a need for regulation in this area. I believe there will be a regulation here to manage the credit cards' inflation effect," Alpaslan Çakar told a meeting with journalists.
"I think action will be taken this year."
The chief executive of big state bank Ziraat, Çakar expects the central bank to raise interest rates one last time this week and begin an easing cycle in the last quarter of this year.
He also said he expected authorities to remove this year a raft of financial regulations that were adopted in the wake of a late-2021 deep Turkish lira depreciation.
The comments from Çakar provide a road map on monetary and macroprudential policy from a senior financial sector official as Türkiye continues along a more conventional policymaking path embraced after President Recep Tayyip Erdoğan appointed a new economic administration after winning reelection in May.
The team reversed a yearslong easing policy and embraced a sharp tightening sought to arrest inflation, reduce trade deficits, boost foreign investment, rebuild foreign exchange reserves and stabilize the lira.
The Central Bank of the Republic of Türkiye (CBRT) has lifted its key rate by 3,400 basis points since June, including a hike of 250 basis points to 42.5% last month.
Credit card measures
In addition to rate hikes, the government increased the risk weights on individual loans to curb domestic demand and removed installments for overseas travel.
Measures related to credit cards could involve limits on installments and credit limit controls, Çakar said. He noted he does not expect an adjustment in interest rates, which the central bank determines based on its formulation.
"However, I expect a regulation within the scope of other parameters," he added.
Çakar said they expect the total credit growth in the banking sector to be around 40% this year. He added that they anticipate a slight increase in non-performing loans (NPL) due to monetary tightening, but said it would be manageable.
The Turkish banks' borrowing from abroad stands at $116 billion (TL 3.51 trillion), with $78 billion in loans, $19 billion in borrowings from money markets and $19 billion from securities issuance, he noted.
Çakar mentioned that the sector faced occasional difficulties in borrowing from abroad in previous years. However, he emphasized that there are currently no problems regarding borrowing and demand.
"Maturities are getting longer, and costs will gradually decrease. Money can be found, and there is demand now. Costs will also decrease with the decline in CDS (credit default swap)," he added.
One final rate hike
Çakar went on to say that rate hikes are coming to an end all over the world.
"I think Türkiye will follow the main central banks' rate-cut steps and expect a rate-cut cycle to start in the last quarter," he said.
According to surveys, the CBRT is expected to raise its key policy rate by another 250 basis points to 45% at a policy meeting on Thursday, marking the end of its aggressive tightening cycle.
Çakar said he expects inflation to continue rising through May, before declining to around 40%-45% by year-end, higher than the central bank's expectation of about 36%.
Erkan was cited as telling investors this month that the bank would take any action needed as it sought to lower inflation, which neared 65% last month.
"The crucial aspect is to lower inflation before it becomes sticky and permanent. Managing sticky inflation is of vital importance, and close attention must be paid to it," said Çakar.
"In this context, certain mechanisms need to be operated more actively to protect the market, safeguard the real sector and promote growth again."
Normalization in markets
Çakar also expects the central bank will remove a raft of macroprudential measures before 2025, reflecting what he called a normalization that has started in financial markets.
"Life in the market is gradually returning to normal. The dynamics of price, demand, customer and bank relationships are beginning to take shape. Moreover, the credit mechanism has already found its own course," he noted.
He also cited expectations for an end to a government-backed scheme safeguarding Turkish lira deposits against foreign exchange depreciation.
The government has begun rolling back the so-called KKM scheme and announced measures after the May elections to dissuade companies and individuals from renewing the KKM accounts, which reached a record of over TL 3.4 trillion in mid-August.
The figure has been falling since then and reached as low as TL 2.53 trillion as of the week ending Jan. 12, according to the Banking Regulation and Supervision Agency (BDDK) data.
"By 2025, the KKM will likely cease to be on the agenda," said Çakar.
Reserve requirements have reached 15%-16% of banks' balance sheets, he said, posing "a serious cost for banks." Lenders have asked the central bank for "remuneration" on the required reserves, he added, without elaborating on prospects.