Debt Distress Deepens in Turkey as Cost of Living Crisis Hits Households and SMEs

Turkey’s ongoing cost of living crisis, combined with the central bank’s strict monetary tightening, is straining household and small business finances to the breaking point. The latest data from the Turkish Banks Association (TBB) Risk Center paints a stark picture: millions are falling behind on their debt payments, signaling a worsening wave of financial stress across the economy.

Personal Loan Defaults Reach Record High

In the first nine months of 2025, the number of individuals entering legal debt follow-up surged by 19% compared to the same period a year earlier. This sharp increase underscores how inflation, high borrowing costs, and declining purchasing power are eroding personal financial stability.

According to the TBB Risk Center:

• 1.009 million people have fallen into legal proceedings for unpaid personal loans.

• 1.262 million individuals are now in default due to credit card debt.

In total, more than 4.16 million people are currently managing outstanding debt, reflecting a growing reliance on consumer credit in an economy where wages struggle to keep up with rising prices.

September Surge: 247,000 New Defaults in One Month

The deterioration accelerated sharply in September 2025, when over 247,000 new borrowers defaulted on their payments—one of the highest monthly spikes of the past decade.

The value of non-performing loans nearing “loss classification” reached ₺246 billion, signaling the potential for a new wave of bad debt write-offs in the coming quarters.

Economists warn that the combination of shrinking real incomes and persistently high interest rates is pushing both household and small enterprise liquidity to critical levels. For many, even minimum payments on credit cards have become unmanageable.

Banking Regulator Confirms Rising Credit Risk

Data from the Banking Regulation and Supervision Agency (BDDK) confirms that risks are mounting across the financial sector. As of November 6, total non-performing loan volume stood at ₺541.9 billion, representing about 2.5% of the banking system’s total loan portfolio.

Although this ratio may seem moderate, analysts emphasize that much of the risk remains masked by restructuring programs and grace periods introduced during the pandemic and earthquake relief phases. Without these supports, default rates could be substantially higher.

Households and SMEs Feeling the Brunt

The tightening credit environment and high borrowing costs are particularly hitting consumer loans and small and medium-sized enterprises (SMEs) — the backbone of Turkey’s real economy.

• Personal loan default ratio: 5.25%

• Credit card default ratio: 4.37%

• SME loan default ratio: 3.1%

• Commercial loan default ratio (overall): 1.93%

The gap between SME and large commercial loan default rates highlights a widening inequality in financial resilience. Smaller firms, often dependent on short-term credit for operations, are facing a disproportionate share of the financial strain.

Financial consultant Meltem Aydın noted, “For small businesses, the impact of rising interest rates is immediate. Every increase in loan costs cuts into operating capital, while sales remain stagnant. Many are simply trying to survive month-to-month.”

Systemic Stress: A Warning for 2026

The convergence of high inflation, currency volatility, and tight fiscal controls is intensifying pressure on borrowers. As banks adopt stricter credit evaluations, access to new financing is shrinking — creating a self-reinforcing loop of lower liquidity and higher default risk.

Experts warn that unless household incomes begin to recover or credit conditions ease, default ratios will likely continue to rise into 2026, especially in sectors such as retail, transportation, and services, which rely heavily on consumer demand.

Moreover, as bad debt portfolios expand, banks may tighten lending further, slowing investment and consumption — two pillars of domestic economic growth. This could challenge the government’s aim of maintaining a “soft landing” while keeping inflation under control.

A Fragile Financial Balance

The latest figures confirm what millions of Turkish households already feel: the struggle to stay current on debts is no longer confined to low-income families but increasingly affects the middle class and entrepreneurs.

The rising volume of overdue loans, ballooning credit card debt, and weakening repayment capacity all point toward a prolonged adjustment phase for the Turkish economy — one where maintaining financial stability will require balancing discipline with compassion.

As one analyst put it, “Turkey’s financial pulse shows resilience, but the stress indicators are flashing red. Without relief in real incomes or targeted support for SMEs, defaults could become the next major economic headline.”