* Central bank allows use of gold in reserves
* Commercial banks develop deposits to obtain gold
* Such deposits rocket fourfold in past year
* Jewellers' traditional business model pressured
* Helps authorities to mobilise domestic savings
By Seda Sezer and Behiye Taner
ISTANBUL, July 4 For centuries, Turks have
flocked to the jewellery shops of Istanbul's labyrinthine Grand
Bazaar to trade their gold - ornaments handed down through their
families over generations, or bars stashed under mattresses as
savings. But in recent months the shops have a new and
unexpected competitor: banks.
The country's commercial banks are pouring their technical
expertise and marketing resources into offering their customers
gold deposit accounts. Customers hand their gold to a bank and
can make withdrawals from their accounts in gold bars or the
lira currency; the accounts offer interest rates that are
substantially lower than those on normal time deposits.
Gold deposit accounts have been growing around the world,
but Turkey's boom has made it a leader in the trend. This
appears to have cut the amount of gold flowing to jewellers in
the Grand Bazaar and elsewhere in the country, a trend which
dismays the shop owners. In the long run, it could threaten
their business model, which relies partly on turning scrap gold
they buy into jewellery and selling it back to retail customers.
"Where is the emotion when you go to the bank?...This trade
should not be seen only as gold or money, it is an emotion, a
life," said 60-year old jeweller Turgay Ayardem, who has been
working at the bazaar for 45 years.
The head of the Istanbul Chamber of Jewellery, Alaattin
Kameroglu, said: "People will make losses because of the banks.
They will become less interested in jewellery, and the sector
will be hit.
"We as the jewellery sector are also banks' customers, we
use their point-of-sale machines, credit cards and loans. We
plan to take action against banks which have forgotten about
doing banking and started collecting gold," he added without
Gold is big business in Turkey, for cultural reasons and
also because of the country's experience with bouts of high
inflation over the past century. The metal is traditionally
given as a gift at weddings and circumcision ceremonies, and
demand for imports tends to surge during the summer months.
Turks are believed to have accumulated about 5,000 tonnes of
gold in their homes, worth around $250 billion at current
international prices, according to the World Gold Council, an
industry lobby. It ranks Turkey's gold demand as fifth in the
world for jewellery and eighth for retail investment, mostly
behind countries with much bigger populations such as India,
China and the United States.
Turkey's economic boom has kept imports high despite the
weakness of the lira over the past 18 months. Gold imports in
the first five months of 2012 totalled 35.18 tonnes, compared
with 79.70 in all of 2011 and 42.49 in 2010. Meanwhile, Turkey
produced 25 tonnes of gold last year, up from 16.4 in 2010.
With so much money at stake, it was perhaps inevitable that
other institutions would muscle into Turkish jewellers'
business. The catalyst was Turkey's central bank, which has been
trying to cool breakneck growth in commercial bank lending
without interest rate hikes that could hurt exports by
appreciating the currency. It has pursued this goal by adjusting
reserve requirements, the proportion of deposits that commercial
banks must hold at the central bank instead of lending out.
In September 2011 the central bank increased the ratio of
lira reserves that could be held in the form of gold from zero
to 10 percent, raising it further to 20 percent in March 2012
and 25 percent last month. This had the effect of drastically
increasing banks' appetite for gold.
They responded by promoting gold deposit accounts. Early
entrants into the business included Denizbank and
Islamic lenders Kuveyt Turk and Bank Asya ; others are
preparing to step in.
"We collected 650 kilograms of gold in the last month and
attracted 3,200 new customers with "DenizGold Days"," said Cem
Turgut Gelgor, Denizbank's executive responsible for gold
One of Turkey's largest banks, Isbank, plans to
collect $1 billion of gold or around 18-20 tonnes in its deposit
accounts by the end of this year, deputy chief executive officer
Erdal Aral told Reuters.
Bensu Ozgan, a 43-year-old retired textile sector worker who
was visiting a Denizbank branch, said she previously stored her
gold holdings in a safe at a bank, but would now keep them in a
Denizbank gold account.
"After watching a Denizbank advertisement on television and
my friends' recommendation, I came here to open an account. Now
I will save 150-200 lira every month and buy gold in grams and
add it to this account," Ozgan said.
There are no reliable statistics for how much the flow of
gold to jewellers has declined because of the banks' marketing
push. But an indication can be seen in data from the banking
watchdog which shows total gold deposits at Turkish banks soared
to 15.6 billion lira ($8.6 billion) in April from 3.73 billion
lira a year earlier.
The central bank predicted its latest 5 percentage point
hike in the portion of lira reserves that can be held in the
form of gold would be worth about $2.2 billion.
Some jewellers insist the boom in gold deposit accounts will
prove transitory. They argue many Turks will stay loyal to their
traditional links with jewellery shops; any future reduction in
reserve requirements, when economic conditions change, could
reduce banks' appetite for gold.
"It's impossible to break a habit of centuries with
advertising. Gold keeps Turks warm," said Mehmet Ali
Yildirimturk, a 63-year-old trader at the Grand Bazaar, as he
displayed old gold coins from the reigns of Ottoman Sultans.
But the rise of gold deposit accounts in some ways suits the
purposes of Turkey's monetary authorities; by prompting people
to take gold holdings out from under their mattresses and put
them back in circulation, it may help to reduce the growth of
the country's gold imports, cutting its current account deficit.
It also ties in with the government's desire to mobilise idle
After insisting that he was confident of keeping his
customers' loyalty, Yildirimturk then conceded that his business
might face major change.
"You cannot stand against this wind. The jewellery sector
will be transformed, and one day in the future only jewels will
be bought from jewellery shops, not gold coins for investment,"