Turkey turns to crisis-hit car industry in attempt to revive economy

Turkey’s government turned from the construction sector to the car industry as it sought to revive economic growth and help out crisis-hit businesses with cheap loans.

State-run banks announced on Thursday that they were slashing interest rates on loans used to purchase domestically-produced cars to less than half the annual inflation rate, the state-run Anadolu news agency and other local media reported. The offer is being made in conjunction with manufacturers.

Ziraat Bank, Halkbank and Vakifbank will offer borrowers interest rates of between 0.49 percent and 0.69 percent monthly on loans of between 50,000 liras ($8,800) and 120,000 liras over as many as five years, according to a joint statement by the banks. Annual consumer price inflation in Turkey is 

Turkey is seeking to lift the economy out of a deep downturn brought on by a currency crisis that peaked in August last year. The International Monetary Fund said this week that it expected the economy to grow by 0.25 percent in 2019.

Sales of cars and light commercial vehicles have slumped by an annual 46 percent to 239,317 units in the first eight months of this year, according to data published by the Automotive Distributors’ Association (ODD).

Earlier this month, Ali Kibar, owner of Kibar Holding, which is the producer and seller of Hyundai cars in Turkey, called on the government to introduce swift measures, including tax cuts, to help revive the industry.

Banks should also charge lower interest rates on loans and provide more assistance to the industry for sales campaigns, Kibar said.

The loan rates offered by the state-run banks compare with charges of 1-3-1.55 percent monthly offered by non-government lenders, according to online loan broker hangikredi.com 

The decision by Turkey’s largest state-run banks follows similar measures announced last month for mortgage lending. The three lenders started to provide borrowers with mortgages at interest rates of 0.99 percent monthly, cutting the rates by about one third. Turkeys’ economic downturn has left the construction industry with a huge stock of unsold homes.

The International Monetary Fund and ratings agencies have warned the government that short-term unorthodox measures to boost lending growth in Turkey risks more financial instability. Instead, they have called on the government to implement structural reforms.

It was not immediately clear how the measures focused on loans to purchase locally-made cars would affect the outcome of talks between Volkswagen and the Turkish government over the establishment of a $1.1 billion factory in the country. Firms including Volkswagen, BMW and Mercedes produce cars outside of the country.