The expansion of loans in Turkey helped the economy recover temporarily, but it led to a build-up of debts to consumers and companies, according to a report published by the US website Al Monitor.

The report of the writer Mustafa Sonmez stated that Turkey witnessed an increase in the volume of loans by 40%, as Ankara facilitated the process of obtaining loans, in an attempt to revive the economy after the outbreak of the Corona virus pandemic.

The writer added that the Turkish government had hoped that the abundant, low-interest loans would alleviate cash-strapped consumers and allow companies to stay and delay paying their debts.

The writer stated that the expansion of loans began in 2019, but the decline of the lira led again to raising interest rates.

This, in turn, reduced the demand for loans.

He added that the government dealt with this situation by lowering interest rates to expand the volume of loans, despite the risks associated with that, and this led to a relative economic recovery in the last quarter of 2019 and the first two months of 2020.

 Corona pandemic

But the arrival of the Covid-19 pandemic in Turkey last March caused the economy to contract by nearly 10% in the second quarter.

Last June, the government tried to revive the economy with new cuts in interest rates to facilitate access to loans, and the most notable results of that were the boom in home and car sales.

Turkey avoided economic downturn in 2020 despite the Corona pandemic (Getty Images)

As a result, Turkey's loans today amount to nearly 3.7 trillion liras (487 billion dollars), an increase of 40% compared to the end of 2019, according to official statistics.

Consumer prices increased by 12% in the same period.

According to the Monitor report, the increase in loans is equivalent to 21% of the country's GDP at current prices during the past year, meaning that more than one-fifth of the GDP was pumped into the economy, and this is what helped the Turkish economy avoid a contraction of more than 10% in the second quarter, before registering a growth of 6.7% in the third quarter of 2020, and the country may avoid deflation for an entire year despite the pandemic.

Depreciation loans

Statistics indicate that consumer loans witnessed the largest increases by 46%, or about 260 billion liras (34 billion dollars) over 12 months, and the increase in consumer demand played a fundamental role in economic growth in the third quarter, according to the report.

The report states that the sub-units of the manufacturing industry used loans a lot as of last October, as the balance of their loans increased by 254 billion liras (33.4 billion dollars) over a year, for a total of 792 billion liras (104 billion dollars), or nearly 22% of all loans.

The trade sector was the third largest beneficiary of loans, followed by the construction sector, one of the sectors most affected by the economy.

Turkey stopped the policy of encouraging loans, after replacing the governor of the Central Bank and the Minister of Treasury in early November (Reuters)

The Monitor website report believes that banks are facing an increase in late payments and bad loans, and adds that late loan payments referred to legal follow-up amounted to about 166 billion pounds ($ 21.8 billion) last October, which is 4.5% of total loans. According to the statistics of the Risk Management Center of the Turkish Banking Association.

The loan promotion policy has stopped

According to the author, Ankara - after replacing the central bank governor and the treasury minister in early November - stopped the policy of encouraging loans amid major side effects, including increased inflation, the rise of imports, and consequently the increasing current account deficit of the country, and new tensions in currency rates;

The central bank also re-raised interest rates last month.

Now, according to the author, Ankara has two options: The first is to use financial policies to support companies and families with low incomes and the unemployed, that is, to increase direct aid, but the government lacks sufficient budget for that, and the other option is to let companies manage themselves. This usually manifests itself in voluntary mergers or acquisitions of small companies by large companies.