Ebook Regulations and Competition in Credit Card Market in Turkey
Credit cards have become the changing face of modern societies. Rising affluence and technological developments contributed much to the increasing substitution of “plastic money” with other forms of payment instruments such as cash, cheque, and charge cards. In parallel to these developments, share of credit card purchases in total consumption spending increased sharply in many countries. Although it is an expensive form of borrowing, many consumers enjoyed using credit option of their cards. Credit card debt stock began to comprise an important part of the total household debt stock in recent years in the countries where this option is available such as the US, UK, France, Ireland, and Turkey.
Turkish credit card market is also experiencing a striking growth in recent years. Number of credit cards reached to 32.4 million at the end of 2006, which ranks Turkey as the 3 rd biggest market in Europe after the UK and Spain. Merchants are increasingly accepting credit cards for payments in Turkey. Number of Point of Sales (POS) climbed to 1.28 million in 2006 from 0.51 million in 2003. Volume of transactions processed through credit cards amounted to 18.8% of the GDP in 2006. Establishment of political and economic stability after a long period of economic crises and short-lived coalition governments, and decreasing inflation and high growth rates have strong positive impacts on this process.
Although market interest rate and inflation rate fall significantly in recent years, credit card rates show strong persistency. In the second quarter of 2001 overnight (o/n) interest rates was 71% when compounded annually, inflation rate was 52% and average APR in the credit card market was 180%. Inflation and market interest rates declined remarkably following the 2001 crisis in Turkey, especially after 2002. As of the last quarter of 2006 o/n and inflation rates are 17.5% and 9.8% respectively. However average APR in the credit market is still 86%.
Sticky interest rates were not observed in other credit markets such as home, auto or consumer credits. Interest rates in these markets followed paths similar to the downward trend in the market rates in recent years.
In this study, the experience of Turkish credit card sector in recent years is examined and the possible reasons for the sticky behaviour of credit card rates are explained. Effects of recent regulations on the competitive behaviour of the market are analyzed from the perspective of theoretical and empirical studies in the literature. Moreover, using a quarterly data set of average credit card interest rates of all issuers in Turkey since 2001, this study provides empirical evidence for the stickiness of the credit card rates in Turkey. One step and two step GMM regressions are run on a dynamic panel data model and it is shown that credit card interest rates are economically insensitive to the changes in the cost of funds for the period between the second quarter of 2001 to the last quarter of 2006. This result is a clear evidence for the lack of competition in the Turkish credit card market.
Download
PDF Ebook Regulations and Competition in Credit Card Market in Turkey
Posted in :
