Today let us deal with the credit market and discuss whether or not a risk is growing for the near future. Credit channel was one that the effects of the crisis were transmitted. Both the evaporation of international liquidity facilities and the ongoing ambiguity made banks unwilling to extend credits. As well considering that domestic demand comes to a halt in such climate, we should also take into account that willingness to receive credits also decreases.
As a result of these, total volume of credits extended by banks started to decrease as of October 2008. Weekly data suggests that total credit volume peaked at the end of October and then tended downwards to the trough level in 2009 May. Since that date however, total credit volume started to invigorate.
Some figures: Difference between the peak and the trough of the credit volume is minus 5.9 percent. A recovery is observed beginning from September 25. Total credit volume is 4.3 percent higher than the trough point at May 2009. Despite this, volume of credits is still lower compared to the same period the year before. This, of course is a positive development. However, the process is inert.
Let me also state a point concerning consumer loans: Changes in consumer loan volume is similar to total credit volume. But there exist to important differences: Consumer loans hit the trough before total credits did. And current level of consumer loans is higher than in October 2008. The difference is 4.6 percent. Therefore, recovery in consumer loan market is more rapid, which is a positive development concerning domestic demand.
Biggest risk in the credit market is the rise in the volume of non-performing credits. Given that production varies at low and unemployment at high levels for a year, non-performing loan problem is naturally expected to gain ground. In line with this expectation, figures indicate an increase in the ratio of non-performing credits to total credits. In the mid-2008, this ratio was at the lowest with 3.7 percent according to weekly data. In September 25, the ratio rose to 6.8%. The ratio alone is not too high; but the pace of the increase is striking. What is more, the ratio is expected to increase further.
Given it is announced Turkey will not take any other step to stimulate domestic demand 'directly', the size of this problem will depend mainly on the developments in the rest of the world. It is a possibility that foreign economies, and in particular the EU economy will recover more slowly than expected. This implies that Turkey's exports will also recover slightly. Therefore, firms will face bigger challenges in paying back the credits.
In the mid-2009 a law allowing Treasury support to credit guarantee funds already established or to be established. In this context, funds will be transferred from Treasury to the Credit Guarantee Fund. The mentioned transaction will be carried out in the coming period. It is expected that with this fund, non-performing credit problem will be eased thanks to the guarantee to be provided. Therefore, such a development will reduce the abovementioned risk.
To sum it up, there is a slight move in the credit market. This phenomenon is more prominent considering consumer loans. Due to the crisis, non-performing credit problem gained pace. Though measures to prevent the further elevation of the problem are taken, course of affairs show that the problem might deepen anyway. That the recovery of foreign economies is slower than expected might lead to a new slowdown in Turkey's credit supply.
This commentary was published in Radikal daily on 12.10.2009
