Household debts rise, but not a major concern
Posted by meb at June 10th, 2008
While household debt in Turkey has increased dramatically in the last couple of years, the ratio of debt to total disposable income is still in the low figures, the latest data show.
According to the Ankara Chamber of Commerce (ATO), debt shot up to 29.5 percent of total income last year, from 7.5 percent in 2003. In most Western countries, however, households are facing worse challenges than those in Turkey, with the number of bankruptcies in Western countries skyrocketing. In Canada for example, many aren’t keeping their heads above water, with total household debt at a record $1.1 trillion and consumers owing 124 percent of their real disposable income. In the US, the figure is equally worrisome: With consumer credit reaching $2.56 trillion in April, US household debt ballooned to 136 percent of disposable income last year, according to the Federal Reserve.
Household debt in Turkey has jumped from 1.9 percent to 11.7 percent of total gross domestic product (GDP), according to an ATO press statement released on Sunday. Analysts point out that the figure is still very low when compared to the 61 percent figure in the Eurozone. Household debt amounts to between 5 and 10 percent of GDP in the four biggest emerging economies — Brazil, Russia, India and China. Central bank figures recorded total Turkish household debt at $80 billion last year, including mortgages. In comparison, Americans are now carrying $975 billion in credit card debt, with a nearly 20 percent increase over the past two years. Approximately half of all American cardholders carry a balance, instead of paying in full every month. One-third of Turkish consumers carry balances on their credit cards.
In Turkey there are around 27 million credit card holders and over 56 million credit cards. Mortgages were $22 billion in March, up 10 percent over the December total, while credit card debt increased by 3.4 percent to some $20.5 billion over the same three-month period.
As an emerging market, Turkey stands out as quite an attractive market for investors, primarily because the consumer market is unsaturated and there is significant room for financial maneuvering. The global credit squeeze has not affected Turkish banks much because of the structural layout of the finance sector. While many banks in the US and Europe have incurred great losses, Turkish banks are jubilant with news reports that they posted record profits in the last quarter. Unlike US banks, they did not suffer from subprime mortgage losses.
For example, Turkey’s second-largest private lender, ?? Bankas?, posted a 51 percent rise in first-quarter unconsolidated net profit to reach $444 million, helped by strong lending growth. It said net interest income rose 32 percent to $741.5 million, and total lending rose 14 percent from the end of last year to $ 31.2 billion. Their rival Akbank posted a 61 percent rise in first-quarter net profit to reach $578 million, helped by one-off items, and said loans grew 11 percent from the end of 2007.
Another major advantage, analysts stress, is the healthy consumer appetite in the retail market simply because the market is not saturated. Adding to that, a very dynamic and young population in Turkey presents a great market for potential investors. Major cell phone operators in Turkey are enjoying profit windfalls thanks to booming consumer demand in a young consumer sector.
Nevertheless, Turkish consumers have started to feel the pain caused by the international rise of oil and food prices. This showed itself immediately in inflation figures that reached 10.74 percent — a double-digit number for the first time since April of last year. The number of defaults on credit card payments rose 88 percent in the first quarter, reaching 139,895, while consumer credit defaults rose 160 percent to 32,927. While the rate of increases was quite high, the total number of defaults is not yet at an alarming level.
source: Today’s Zaman
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