Landon THOMAS Jr. The New York Times
ISTANBUL — Is Turkey’s booming economy ripe for a fall? It certainly looks that way.
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 A.T.M. 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.
While the standard of living is currently less than one-third of Turkey’s stagnant, debt-burdened Mediterranean neighbors like Greece and Italy, the economy is growing at about 9 percent a year — about the same as China’s. And Turkey has a manageable inflation rate of 8 percent and a budget deficit that this year is expected to be little more than 2 percent of G.D.P.
The Central Bank of Turkey, taking aim at the country’s aggressive and highly profitable banks, has sharply increased the level of interest-free deposits that banks must hold at the central bank, in effect decreasing the amount they have available to lend.
And if that was not a clear enough message to the banks to tap on their lending brakes, Turkey’s top economic official, Ali Babacan, reinforced it this month by warning that the government did not want to take “police-style” measures if the banks did not respond to the gentler moves — a remark that resonated at a time when journalists and authors have been arrested for writing articles that are critical of the state.
The trouble is, the bankers are no longer entirely calling the tune. More than six months into this go-slow approach to monetary policy, Turkey’s voracious consumers continue to borrow and spend.
As expected, banks have made it more expensive for consumers to borrow, by raising rates. But with access to personal loans easier than ever, there is little sign that free-spending Turks are paring back.
Fuat Erbil, head of consumer loans at Garanti Bank, Turkey’s largest bank, says that the success of the instant loans reflects the emerging buying power of a younger, more dynamic Turkey.
“The younger generation is spending more than their parents,” he said. “They eat out, care about fashion, buy BlackBerrys. It’s more, more, more.”
From where he stands, Mr. Erbil sees no slackening in loan demand as higher interest rates have been absorbed by customers who seem to care little about, say, paying a bit more to finance dining room sets for their new houses. After generations of relative penury, “there is a passion for these kinds of purchases,” Mr. Erbil said.
In fact, there has been a passion for consumption and investment of all sorts here — as evident when Mr. Erdogan celebrated the opening of Turkey’s tallest edifice, the Sapphire building, at a glittering ceremony in March.
So far, the building’s five floors of luxurious shopping have attracted fairly thin crowds, a possible sign that mall-saturated Istanbul might finally be reaching its limit. On a recent weekday, two bored salesmen sat at a desk at the building’s entrance trying without much success to draw interest in the building owner’s coming stock offering.
But a line did form to ride the high-speed elevators to the observation deck on the top floor of the 856-foot building.
It is less than two-thirds the height of the Empire State Building. But from up there, with a stunning view of Istanbul’s European and Asian sprawl, one can look down on the row of headquarters for the bank executives who have financed Turkey’s boom — which the bankers are betting will not end with another plunge.
Source:
http://www.nytimes.com/2011/04/26/business/global/26turkey.html?_r=1&src=tptw
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