May 19, 2024

Turkey Spends Freely Again, and Some Analysts Worry

Stock brokers endure four-month waiting lists to pay as much as $150,000 for top-of-the-line Audis and BMWs — twice the manufacturers’ prices after taxes. A real estate developer recently laid out a record $33.3 million an acre for a 24-acre plot of land in Istanbul’s city center.

But the most striking sign that the economy here may be overheating comes from a usual suspect: the country’s aggressive banks. They have found a creative way to finance consumer splurges by providing quick loan approval via text message or automated teller machine.

Analysts and bankers say the explosive growth in consumer loans has fed a worrying expansion of the country’s current account deficit, estimated to be 8 percent of gross domestic product this year.

Turkey’s trouble in financing gaps of that size has been at the root of its past two busts, and some worry that history may be repeating itself.

“We are again producing and consuming beyond our capacity,” said Atilla Yesilada, an economist at Istanbul Analytics, who has lived through Turkey’s last two busts, in 1994 and 2001. “We are financing our growth entirely through foreign credit, which is becoming more expensive. At some point life catches up with you, and you crash.”

More than any other emerging economy, Turkey has been on a roller-coaster ride over recent decades, in which manic growth has almost inevitably been followed by a sickening crash.

But this time will be different, promises the popular government of Prime Minister Recep Tayyip Erdogan, who is heading for a nationwide election in June in which the robust economy is widely expected to carry him to an unprecedented third term in office.

Many people have said as much just before the Turkish economy collapsed, of course. But here in Turkey, whose decade-long expansion was only briefly interrupted during the global financial crisis, the government and many business leaders argue that their nation has moved beyond its boom and bust syndrome, and that policy makers are now well-equipped to pull off a so-called soft landing.

“We are looking for 4.5 percent growth this year, and we think that is manageable for the economy,” said Faik Acikalin, the chief executive of Yapi Kredi Bank, one of the country’s largest providers of consumer loans.

Since the government’s crackdown on overly enthusiastic credit card lending by banks in the last decade, general purpose consumer loans have become the preferred vehicle for financing domestic demand here.

According to research from Standard Unlu, an Istanbul-based investment bank, general purpose personal loans grew at an average annual clip of 61 percent from 2005 to 2008 and have barely slowed since, registering a 42 percent gain last year.

It is not surprising that these loans have become so popular — for banks as well as customers.

After a consumer receives a text message from the bank informing him that he qualifies, or a note that he may pick up at an A.T.M., all he needs to do is pay a quick visit to his bank branch and collect the cash.

Mr. Acikalin insists that a close credit watch is being kept. And he says nonperforming loans are extremely low, at about 3 percent of loans outstanding. Broadly speaking, he adds, the Turkish banking system is in better shape than ever.

He points out that after the 2001 crisis — when scores of thinly capitalized banks failed — the government imposed stiff capital and lending rules that protected banks from the worst ravages of the brief 2009 recession, when the economy fell by 4.8 percent.

Under Mr. Erdogan, who heads a government with a Muslim character sharper than any in the 88-year history of the modern Republic of Turkey, the country has plenty to crow about. Turkey generated a gross domestic product of about $730 billion last year, making its economy the 17th largest in the world.

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