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Turkey: Good news outweighs bad for banks

Credit card bad loans to rise but business still highly profitable


Turkey's credit card industry, one of the fastest-growing products for the country's financial institutions, will remain an extremely lucrative business for the foreseeable future.

The not so good news is that banks' non-performing loans ratios on outstanding card loans will get worse by the end of the year although systemic risk is not on the horizon. These are the key findings of a report by Merrill Lynch on Turkish banking that was released in July.

The report adds that generally "there has been an improvement in underlying credit card usage as a result of banks' awareness". One of the most important changes is that banks have become less aggressive in promoting card use. Banks have reduced their approval rates to 25% from levels as high as 70% late last year, according to Merrill Lynch.

The big worry is that the levels of bad debt will rise over the next few months. The US bank calculates that the gross NPL ratio on outstanding loans will rise to 8% by the end of the year from 6.9%.

One of the reasons for this deterioration in repayments is that the interest charged on credit cards is relatively high at between 4.5%

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