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Turkey's Ban on Credit Card Instalments for Foreign Travel Puts Sector on Ice

Turkey’s decision to halt credit card installments for foreign travel and tourism expenditures has dealt a significant blow to foreign travel operators.

Credit Cards
Credit Cards

Impact on the Travel and Tourism Sector

Turkey's banking watchdog, BDDK, has recently introduced regulations that prevent the use of credit card installments to finance overseas travel. This includes payments for flights, accommodation, and travel agency fees. The move is a significant setback for foreign travel operators who had already been struggling due to a cost-of-living crisis and a devalued lira.

Consequences for Consumers and Businesses

Tourism operators have noted a marked decrease in business as the lira has lost half its value against the dollar since 2021. Many travelers have relied on credit card payments to fund their trips due to these economic circumstances. "Almost all of my clients were paying by installments," shared Cem Polatoglu, spokesperson for a tour operators' platform. The new regulation poses a significant challenge for travelers who cannot afford to pay for their trips upfront.

The Aim and Potential Consequences of the New Policy

"The logic (of the step) is 'citizens shouldn't go abroad and spend foreign currency'," Polatoglu explained. The expected result of the new regulation is a steep decline in the number of people traveling abroad. The first half of the year witnessed a surge in spending by Turkish citizens abroad to $3.17 billion - an 84% increase from the same period in 2022 - facilitated largely by credit card expenditures.

Stock Market Reaction to the New Regulations

In response to these changes, airline stocks have suffered. Shares of Turkish Airlines dropped 1.3%, while Pegasus shares fell 2.3%. The main BIST-100 index in Istanbul also dipped 0.4% due to these recent developments.

Additional Measures by the BDDK

In a statement on Monday, the BDDK also revealed its decision to increase the risk weightings used to calculate capital adequacy standard ratios for consumer loans, personal credit cards, and vehicle loans. This move is part of a series of measures taken by Turkish authorities to curtail chronic high inflation and reduce domestic demand, including a hike in interest rates by 900 basis points over two months.