Turkey’s BDDK watchdog bans Citigroup, UBS and BNP Paribas from trading with the lira - eCompareFx

In a press release, the BDDK banking watchdog bans 3 banks due to failing to meet their Turkish lira liabilities on time. When inquired about the drastic measure the watchdog has taken, they said that it was to protect the rights of savers from any dangerous practices. Andalou Newsagency has reported that foreign banks faced financial penalties and expulsion from the market due to liabilities last year and alleged manipulation of currency. The banks in question chose to remain silent about the issue.

Despite all attempts made by Turkey’s central bank, the currency is gradually thinning which is causing major concerns over economical stability. The interest rates slouched at the inflation of 10.9 percent.

Tim Ash, an economist at BlueBay Asset Management disclosed that such a decision can be very damaging for Turkey’s financial conditions and that the regulators need to think clearly before executing their plan.

Turkey’s Treasury and Finance Minister Berat Albayrak and senior economist at Pictet Asset Management Nikolay Markov had a conference call on May 6th where Albayrak assured the investors that the central bank’s gross reserves of just over $50 billion were sufficient.

Markov told the press that it is just a matter of time before the weakening lira and the low reserves lead to a crisis.

“There is no immediate risk of a full-fledged financial crisis but the risk has increased recently,” Markov added.

Turkey’s central bank has sought swap lines with other fiscal authorities to help sustain financial stability and protect the monetary impact of the pandemic. But when asked about extending swap facilities to Turkey and other countries, a Fed policymaker said that the institution already had arrangements with countries that have a relationship based on mutual trust with the US.

According to Thomas Barkin, the President of Richmond Fed said the swaps were designed to stabilize financial markets and not provide funding. Turkey has access to repo or repurchase agreement facility which means the country can borrow finances if needed.