Turkey, Serbia find credit cards can soon mean huge debts By BORIS BABIC AND YIGAL SCHLEIFER

ARTICLE (April 24 2010): Consumer debt has, by far, been one of the main contributors to the recent debt explosion around the world. Thanks to the recent financial crisis, the residents of many Western countries are now struggling to get their consumer debt under control. But there are signs that history could be repeating itself in some of the world's up-and-coming economies.

World-wide, consumer credit card debt has ballooned to almost 1.7 trillion dollars in 2009, up from 1.1 trillion in 2001. Two growing contributors to that trend are Turkey and Serbia. In both places, aggressive marketing by banks and credit card companies have led to record numbers of credit card users. Meanwhile, high interest rates and economic trouble have led to a growing number of consumers falling behind on their payments.

To call the growth of Turkeys credit card industry robust would be an extreme understatement. Credit cards only started to really take hold in the country in the early 1990s. But in the last few years, their level of use has skyrocketed as has the number of people finding themselves in financial trouble because of their new high-interest debts. Between 2002 and 2009, the number of credit cards in circulation in Turkey grew by a whopping 203.4 percent, from 15.7 million cards to 47.7 million.

Even more stunning has been the growth during that period in credit card spending, 762 percent, up from 16 billion Turkish lira in 2002 to 138 billion in 2009. Turkey is becoming a kind of new consumer society," says Andrew Neeson, head of research at the London-based Lafferty Group, which specialises in consumer finance and credit card research.

Five or 10 years ago, it was a kind of prospective credit card market, but now its one of the top four markets in Europe." Card issuers and banks have come up with all kinds of different ways to encourage people to spend, to give incentives to go out and use their cards," he adds.

But this growth has had its dark side. Turkeys economy is no longer the crisis-prone mess it was a decade ago. But the unemployment rate is among the highest in Europe and wages in the country have remained flat. At the same time, interest rates on unpaid credit card loans can reach 42 percent.

If you get caught up in this thing, you cannot really get away. You cannot really pay it back. If you fall behind on your credit card payments, you are dead meat," says Alpay Dinckoc, a banking analyst with Istanbuls Oyak Securities. From the consumer point of view, there should be concerns."

In Serbia, the average consumer now finds that credit card debt takes up more than one-fifth of his wage. Many are unable to rid themselves of their cards. According to data from the Serbian Banking Union, the average per capita debt via credit cards in Serbia is 5,600 dinars (75 dollars), which is a major chunk of the average 30,000-dinar wage.

Unlike other typical debts, credit card holders have access to new money immediately after making a payment - but at a huge, though well-concealed, interest rate of up to 33 per cent annually. Few paid attention or cared until the pinch of the tumbling dinar and a high inflation rate. Now, many cannot get out.

"I am simply, plainly unable to close that debt. I don't have enough to close it and pay other debts and feed the family," says Dragana Markovic, 43, a nurse and mother of three. "It's like STD (sexually transmitted disease) - you had your fun, now pay!" Markovic repeats well-rehearsed acrobatics every month: when the salary arrives, she deposits cash to her credit card account, then immediately withdraws it - minus the interest, of course.

The revolving credit on her 100,000-dinar limit costs her around 3,000 dinars each month. But she says she and her husband, on a combined income of around 70,000 dinars, are too deeply indebted and will deal with it once they service "loans that have an end to them."

In recent years, the Turkish press has increasingly featured stories of families that have been destroyed by credit card debt. In one famous case, a policeman shot himself in the head on an Istanbul street, despondent over his 40,000 dollars in unpaid debts. Credit card defaults surged in 2008, from 192,266 the year before to 602,648, an increase of 213 percent. The number rose to 1.1 million in 2009.

The Turkish government has tried to step in, passing a law in 2006 that put a cap on interest rates and made it harder for banks to issue credit cards. But critics say the government should go further. Its a vicious cycle of debt. Nobody can get out of it," says Aydin Agaoglu, an official with Consumers Union, a Turkish advocacy group that has been pushing for stricter government controls on the credit card industry. The growing debt is becoming a social problem, not just an economic one."

Source: http://www.brecorder.com/index.php?id=1048939&currPageNo=1&query=&search=&term=&supDate=