Turkey Makes It Easier to Borrow After Coup Attempt Hurts Demand

(Bloomberg) -- Turks will be given more time to repay some consumer loans as part of a broader effort to revive domestic demand, a key driver of growth in Turkey that has showed signs of slowing since July’s failed coup.

Borrowers can now pay back consumer loans over four years rather than three, Prime Minister Binali Yildirim said on Wednesday in Ankara. Loans and credit card debt can be restructured to be repaid over six years, he said. Annual consumer loan growth fell below 5 percent after the attempted coup, the lowest level in five years.

While the easing of lending restrictions may help to boost sentiment, it also rolls back some of the limitations introduced by former economy czar Ali Babacan after Turkey’s economic boom years brought foreign imbalances to unsustainable levels. In a nod to the risk easier conditions pose to the current-account deficit -- already one of the highest in the G-20 -- Yildirim said rules on electronics and mobile phone purchases would be tightened.

“The regulations aim to improve economic activity, which has slowed since the failed coup attempt,” Ozlem Derici, an economist at Deniz Invest in Istanbul, said in an e-mail. “They may help GDP growth, which slowed to 3.2 percent in the second quarter, recover. However, the inflationary impact may dampen business sentiment and investment demand, thus limiting potential growth.”

Economic Slowdown

Turkey’s economic slowdown deepened after the botched takeover on July 15, and with consumer loans decelerating, relaxing some macro-prudential measures will “open up space” for growth, Deputy Prime Minister Mehmet Simsek said in an interview with NTV television on Thursday. The measures will have a positive impact on growth and a negative impact on the current-account deficit and inflation, he said.

The current-account gap, a key metric watched by investors because it leaves the economy dependent on foreign capital flows, is forecast to be 4.5 percent of GDP at year-end. It rose to just under 10 percent of gross domestic product in 2011, prompting regulators to step in with measures to curb consumer borrowing and demand for imports.

Under the new rules, consumers will be able to increase installments for credit card purchases to 12 months from nine for most items, Yildirim said. Mortgage borrowers will be allowed an 80 percent loan-to-value ratio -- up from 75 percent -- in an attempt to revive the private construction industry, which makes up about 7 percent of the economy.

At the same time, monthly payment installments for electronics and mobile phone purchases were reduced to six from nine, Yildirim said.

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