Restructuring in consumer loans: impact on demand is difficult!
It is very likely that the Turkish household pressured by the dire economic conditions in Turkey will show demand to the mentioned restructuring plan. However, domestic demand will hardly be recovered through the planned scheme.
Last year’s currency crisis is continuing to take its toll on the Turksh economy as it has going through a severe contractionary period as of the start of 2019. Cheap loans subsidised by the state banks and the tax cuts have not been effective in pulling up domestic demand as evident from the incoming macro data since last November.
The government had introduced Credit Guarantee Fund as a gateway to restructure problematic corporate sector debt creating minimum burden for the banks. Now another bout of debt restricting is being planned for consumer loans ahead of the critical March 31 local polls.
According to Dunya newspaper, the Banking Regulation and Supervision Agency (BDDK) drafted a regulation for the “Establishment and Operating Principles of Financial Leasing, Factoring and Financing Companies”. It regulates the procedures and principles regarding the loans provided by banks and the principles and procedures regarding establishment and working principles of financial leasing companies, factoring companies and financing companies.
With a provisional item in the draft, the restructuring of consumer loans is being introduced limited to 60 months of instalment. The balances of the loans extended consumers- both the principal and / or the interest payments- if requested by the borrower, will be restructured limited to a maximum of 60 months.
It is very likely that the Turkish household pressured by the dire economic conditions in Turkey will show demand to the mentioned restructuring plan. However, domestic demand will hardly be recovered through the planned scheme, as the tax cuts and cheap consumption loans have failed so far. The real problem of high inflation and lack of a coherent economic policy for the corporate debt problem in Turkey that creates tangible uncertainties keep Turkish citizens from spending on items other than necessities in a broad sense.
Whether the public banks will utilised in the process offering cheap loans is not clear.