Turkey banned its banks from trading lira with Citigroup, UBS and BNP Paribas
Turkish banking regulator said on Thursday that divisions of large international banks Citigroup, UBS and BNP Paribas no longer have the right to process transactions with Turkish lira as these credit institutions have not fulfilled their obligations related to the national currency.
Banned banks are major players in the foreign exchange market who regularly perform large volume conversion transactions for their clients, including transactions with Turkish lira.
Previously, Turkish media accused Citigroup, UBS and BNP Paribas in London of currency manipulation, accusing the banks of playing against the lira.
Earlier, Turkish lira reached a record low against the dollar, but then recovered its losses. Now the rate is 7.1 lira for the US dollar, since the beginning of the year lira has depreciated by 20%.
Central bank in Turkey has almost exhausted its foreign currency reserves because of the coronavirus and has recently asked the USA for a swap line similar to that provided by the USA to Brazil and Norway. However, experts assume that the US will reject the offer because Turkey has no reserves, trade with the US is rather limited and the political relations between Ankara and Washington cannot be called warm recently.
To help the economy to withstand the pandemic сovid-19, Central Bank of Turkey has reduced the rate from 24% to 8.75%. However, the lower rate reduces the attractiveness of the currency and Turkish assets for foreign investors. The cheaper lira makes it difficult for Turkish banks to repay debts in foreign currencies.
Short-term debt obligations of credit institutions amount to 79 billion and should be repaid by February 2021, according to data on the website of the Turkish regulator.
However, some experts doubt that by blocking the three banks, it is possible to bring the lira rate closer to a more fair value, as a decrease in the number of counterparties leads to an increase in the price of liquidity.