Turkey Moves to Tighten Rules on Overdraft Accounts

The rapid expansion of overdraft accounts, known in Turkey as Kredili Mevduat Hesapları (KMH), has prompted economic authorities to draft new regulatory measures to curb excessive household borrowing. According to data released by the Banking Regulation and Supervision Agency (BDDK), KMH balances reached ₺742.5 billion as of January 16, highlighting a sharp acceleration in consumer reliance on short-term credit.

This figure marks a dramatic increase compared to the same period last year, when total KMH balances stood at ₺441.2 billion. The growth has been so pronounced that overdraft borrowing has now overtaken housing loans, which totaled approximately ₺648.4 billion during the same week.

The data has raised concerns among policymakers about household debt sustainability, particularly amid high living costs and wage pressures.

Overdraft Borrowing Accelerates Despite Past Restructuring

The rise in KMH usage comes despite previous policy efforts to contain household debt. Last year, authorities introduced restructuring options for credit cards, consumer loans, and overdraft accounts, aiming to ease repayment pressure and slow borrowing growth.

However, overdraft balances have continued to climb, indicating that structural income constraints and rising expenses are pushing millions of individuals toward short-term liquidity solutions. Low real wages and persistent cost-of-living pressures have made KMH facilities an increasingly common tool for covering day-to-day expenses rather than temporary cash gaps.

Columnist Dilek Güngör, writing for Sabah, noted that the sharp increase in KMH usage is being closely monitored by the economic administration, as it reflects growing financial stress among households.

Bank Discretion Under Scrutiny

Under the current framework, KMH limits are generally capped at three times a customer’s monthly income. However, the final decision has largely been left to banks’ discretion, allowing flexibility based on income assessments and credit scores.

In practice, this has led to cases where KMH limits exceeded recommended thresholds, particularly for customers with strong credit histories. While such flexibility supported consumption in the short term, regulators now view it as a potential risk to financial stability.

The planned regulatory changes aim to eliminate this discretionary space.

New Rule Set to Make Limits Binding

According to Güngör, authorities are preparing a binding rule set that will strictly define KMH limits for banks. Once implemented, financial institutions will no longer be allowed to open overdraft accounts above the prescribed limits, regardless of internal risk assessments.

This marks a shift toward tighter macroprudential oversight, reducing banks’ ability to extend unsecured short-term credit beyond standardized thresholds.

The move is designed to slow KMH’s growth, limit excessive household leverage, and reinforce discipline in consumer lending practices.

Financial Stability Committee Takes Action

The issue was formally discussed at a recent meeting of the Financial Stability Committee, signaling that overdraft accounts are now viewed as a system-wide concern rather than a niche banking product.

Following the meeting, the committee stated that “the current situation regarding overdraft accounts, credit commissions, and credit cards was reviewed.” This wording suggests a broader evaluation of consumer credit conditions, with KMH balances emerging as a focal point.

Officials have not yet disclosed the exact parameters of the new limits, but the emphasis on binding rules indicates a more rigid regulatory approach going forward.

Why Overdraft Accounts Matter

Unlike installment-based consumer loans, KMH products function as revolving credit, often carrying higher interest rates and compounding costs. As balances grow, borrowers may find it increasingly difficult to exit debt cycles, particularly when income growth lags inflation.

Regulators fear that unchecked KMH expansion could amplify financial vulnerability among households, increase non-performing loan risks, and weaken banks’ asset quality during economic slowdowns.

The fact that KMH balances have surpassed housing loans—a traditionally dominant segment in retail lending—has further heightened concerns.

Balancing Credit Access and Stability

Authorities now face the challenge of balancing financial inclusion with systemic risk management. While overdraft facilities provide short-term relief for households facing liquidity stress, excessive reliance on such instruments can deepen financial fragility.

The new regulatory framework aims to ensure that KMH products remain a temporary support mechanism rather than a permanent substitute for income.

By standardizing limits and reducing bank-level discretion, policymakers hope to slow credit growth without triggering abrupt disruptions in household consumption.