A subsidiary of Dubai’s Emirates NBD, the UAE’s largest bank by assets, has launched a new loan scheme whereby customers can borrow up to 80 percent of the value of any gold they deposit, it was announced on Wednesday.
Emirates Money, a wholly owned subsidiary of the Dubai government-owned lender, has launched the “Loan Against Gold” scheme, the first lending product of its kind in the Gulf.
Customers can deposit gold in the form of jewellery or bullion, which will be stored in the Dubai Multi Commodities Centre’s gold vault, and can then avail of a low interest loan of up to 80 percent of the value of the deposit.
However, there are some conditions: customers must deposit gold worth a minimum of AED30,000($8,167) and for a minimum of six months.
“Emirates NBD Group is focused on developing innovative lending concepts and responsible practices that will enable us to offer our customers the most attractive terms, while at the same time securing our investments,” said Jamal Bin Ghalaita, group deputy CEO, Emirates NBD and chairman of Emirates Money.
The bank added that any gold deposited under the scheme will be covered under insurance, and all transactions are recorded on camera. The value of deposited gold will be determined by the use of non-destructive testing methods, it added.
Earlier this month, it was reported that retail gold sales volumes in Dubai and Abu Dhabi fell by around ten percent on the year in October as high gold prices deterred consumers despite the Indian festive season.
"Ahead of Indian festival of Diwali demand is usually strong but this year prices are just too out of reach for a lot of people...we saw a drop of around ten percent in volumes," said Tushar Patni, director of Ajanta Jewellers, one of the largest retailers in the emirate capital of Abu Dhabi.
Spot gold hit a record high above $1,397 an ounce, then slipped back to $1,393.15. Investors often buy the metal as an inflation hedge and alternative to the dollar when the US currency weakens.
"When things are not going well in the festive seasons you can only imagine what will happen a few months from now because there is no sign that the prices will come down," said a retailer in Dubai's old gold souk.
As cash-strapped consumers struggled to purchase gold this time of year, demand for silver coins was seen to be higher, said Pradeep Unni, senior analyst and trader at Richcomm Global Services in Dubai.
"Unlike the last year, there was an increasing demand for silver coins this year because gold is getting too expensive," said Unni.
Overall, retail gold demand volume in the Middle East during the second quarter of the year was mixed, with Saudi recording a five percent rise on the year, while the UAE fell by fifteen percent, according to a report by the World Gold Council (WGC).
Gold demand in Saudi was driven by strong domestic consumption, and UAE demand had tailed off in response to high prices during the second quarter, the WGC report added.
The scheme allows customers to borrow up to 80% of the value of any gold they deposit.