Regulations and Competition in Credit Card Market in Turkey

Turkish credit card market experienced a strong growth with the establishment of stability in the economy and the decline in the inflation rate after 2001 crisis. Turkey became the 3rd biggest market in Europe with 32 million credit cards in 2006. However, the quick response of the credit card interest rates to the increase in the cost of funds during the 2001 crisis was not observed in the case of decreasing cost of funds afterwards. Credit card interest rates stayed persistently high compared to the declining market interest rates and the interest rates in other credit markets such as home, auto or consumer credits. This study is an attempt to analyze the failure of competition in the Turkish credit card market. Moreover, a quarterly data set of the credit card interest rates of the all 22 issuers in the Turkish market is employed to provide empirical evidence for the failure of price competition in the market. The data set spans from the second quarter of 2001 to the last quarter of 2006. One-step and two-step difference and system GMM regressions are run on the panel data set. The study concludes that the credit card interest rates in Turkey are economically insensitive to the changes in the cost of funds during this period.