Turkey banks cash gold to avert a liquidity crisis - Bloomberg

Turkish central bank’s weekly report showing a 20 percent decrease in its gold holdings since mid-June indicates that Turkish banks have pulled as much as $4.5 billion worth of gold reserves during that period to avert a liquidity crisis as the lira plunged, Bloomberg said on Friday.

The gold holdings of the Central Bank of Turkey fell to 15.5 million ounces as a result of the exodus, which has also been triggered by the bank’s decision to lower reserve requirements on Aug 13.

Turkish lira has dropped more than 40 percent against the dollar this year, hitting record lows in August due to a diplomatic spat between Ankara and Washington over the detainment of U.S. citizens in Turkey.

It is likely that Turkish commercial banks are switching to more liquid assets, as a result of plummeting lira, Jason Tuvey, a senior emerging markets economist at Capital Economics in London, told Bloomberg. “There’s been concern at the commercial banks over their external debt burden, which has been reflected in the rising bank bond yields.”

“The most drastic drop appeared in August when the lira gold crisis was at its peak,” Cagdas Kuckemiroglu, Turkey-based consultant for Metals Focus said, adding that the future of this trend will depend on the market’s reaction to Turkish central bank’s announcement of a 625 basis-point interest rate increase on Thursday. 

Turkey has $118 billion in short-term debts due by September 2019, 44 percent of which accrues to private financial institutions, said Nora Neuteboom, an ABN Amro Group NV economist who specialises in Turkey.

Turkish banks, hedging dollar liabilities with gold deposits rather than the lira, are selling gold to shore up finances for when their debt becomes due, according to Neuteboom.