Turkish banks are likely to issue more gold-linked bonds next year as the government continues efforts to draw gold into the financial system and so reduce the need for foreign borrowing, the chief executive of Istanbul Gold Refinery said.
Aysen Esen told Reuters she expected further emphasis on drawing private gold holdings estimated at $100-200 billion, corresponding to 2,500-5,000 tonnes, into the banking system. "We believe 2018 and the period ahead will be a time where efforts to take out gold from 'under the mattress' continue ... we expect new bond issuances and different exercises from banks that are interested in gold," she added.
Turkey's treasury sold gold-backed bonds and sukuk in October and lender Denizbank said this month it would follow suit. The debt instruments carry interest rates linked to gold prices plus a fee for the owners of the physical gold backing the bonds, equivalent to 2.46 tonnes for the sovereign issue and up to 13.5 tonnes for Denizbank's transaction. The bonds mark a new source of financing for the government, which struggles to fund its big budget and current account deficits through domestic borrowing but is increasingly reluctant to rely on foreign investors. Turkish authorities have accepted gold on deposit as part of commercial banks' reserve requirements since 2011. Gold is a traditional investment for many Turkish people seeking to hedge against sharp fluctuations in the lira currency and who see jewellery, such as women's gold bangles gifted at weddings, as a safe store of wealth.
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