Turkey has blocked three foreign banks – BNP Paribas, Citibank, and UBS – from doing foreign exchange transactions with the Turkish lira, the nation’s banking watchdog announced on Thursday.
These banks failed to complete their Turkish lira commitments and so defaulted, said Turkey’s Banking Regulation and Supervision Agency (BRSA).
The move followed reports saying some London-based financial institutions are engaged in manipulative attacks aimed at depreciating the Turkish lira, by buying large amounts of foreign currency with liras they do not own.
The banking authority aims to protect the rights of both savings holders and banks in Turkey.
The move will prevent “transactions and applications that might endanger the operation of banks” as well as ensure the credit system works effectively, said a BRSA statement.
After the regulator’s ban, the Turkish lira, which hit a record low against the dollar on Thursday, rebounded.
It was trading 1.2% higher at 7.1065 per dollar at 15:31 p.m. (1231GMT).
Commenting on the issue, Kerem Alkin, an economics professor at Istanbul's Medipol University, said London-based financial institutions are doing manipulative trades and harming Turkey's banking sector.
The crucial issue is that these financial institutions buy Turkish liras from Turkish banks and use them to buy dollars, taking manipulative positions against the lira, he explained.
"So these London-based banks trying to buy liras to buy dollars were unable to find the liras in the market and their positions remained 'open'," he said.
This resulted in foreign banks having to close their position by selling their dollars in order to find the Turkish liras they needed.
According to Alkin, overseas speculators in the international financial environment have been trying to direct Turkey to a loan agreement with the IMF, something the government has announced it is opposed to.