Turkey introduced measures on Wednesday to try to control rampant consumer loan growth and lift its domestic savings rate from historic lows, another front in its battle to reduce a gaping current account deficit.

The regulations introduced by the BDDK banking watchdog focus on trying to curb debt-financed consumption by making credit card loans more costly for lenders and tightening spending limits for consumers.

Turkey has seen explosive consumption-led growth over the past decade, with per capita wealth almost tripling in nominal terms, but its low savings rate and huge energy deficit have made it heavily dependent on volatile foreign capital flows.

Addressing the imbalance has become all the more urgent with the US Federal Reserve expected to begin tapering its massive stimulus programme in the coming months, a move which would curb the flow of cheap money Turkey has been relying on to finance its current account deficit.

The new measures include higher risk weightings for credit card loans, making them more costly by forcing lenders to make higher provisions. Consumer financing firms, which offer loans for high-ticket purchases such as cars or houses, will be subject to the same reserve requirements as banks.

Credit card limits for consumers are meanwhile capped at four times monthly income under the new regulations, which take effect immediately, while the minimum monthly payment threshold has been increased and penalties for default tightened.

"The government is concerned by the low savings ratio and the resulting imbalances ... These measures will likely keep the external balances under control," JP Morgan economist Yarkin Cebeci said in a note to clients.

Turkish banking shares, however, fell on news of the measures, which could dent lenders' profits.

Consumer loan growth is running at around 26 per cent, well above the central bank's 15 per cent reference rate, while the savings rate has dwindled to a record low of 12.6 per cent of output, Deputy Prime Minister Ali Babacan said on Tuesday.

Credit card and personal loans have increased sharply, according to the BDDK, contributing to a rise in total loans to 1 trillion lira ($500 billion) by September, up 30 per cent in nine months and almost double the level of three years ago.

REBALANCING

There was no immediate reaction from Turkey's major banks.

"These regulations are likely to weigh more on capital adequacy ratios of banks which will limit their expansion in these areas (of consumer finance)," said Ayse Colak, executive vice president at Istanbul-based Tera Brokers.

"The usual suspects to suffer most are Garanti, Akbank and Yapi Kredi, based on the weight of these loans in their overall loan portfolios," she said.

Shares in Garanti Bank and Akbank were both down around 1.8 per cent by 0845 GMT, while Yapi Kredi was down 2.4 per cent, all underperforming a 1.2 per cent fall on the main Istanbul share index.

Turkey's current account deficit is expected to stand at 7.1 per cent of gross domestic product by the end of the year, a ratio which the government sees falling to 6.4 per cent next year and 5.9 per cent the year after, according to its latest medium-term programme announced on Tuesday.

But while the trend is in the right direction, Turkey has relatively weak foreign direct investment compared to emerging market peers and is dependent as a result on volatile portfolio flows and short-term debt to finance the deficit.

In an interview with Reuters last month, Finance Minister Mehmet Simsek said Turkey needed to press ahead with structural reforms to shift away from consumption-led growth, although he noted that such changes would take time.

The BDDK had announced a draft of the new measures in August, weeks after Prime Minister Tayyip Erdogan urged people not to use credit cards and accused banks of locking ordinary Turks into poverty with excessive fees.

Erdogan and members of his government have frequently accused speculators and a "high-interest-rate lobby" of stoking volatility in financial markets to make a quick profit at the expense of the Turkish economy. - Reuters