Turkish banking shares slump as Erdoğan weighs in on lira

Turkish banking shares slid after President Recep Tayyip Erdoğan accused firms of possible complicity in a bout of lira selling.

The main BIST Banka index dropped 4.6 percent to 129,331 points at 4:29 p.m. in Istanbul, extending declines over two days to more than 10 percent.

At an election rally in Istanbul on Sunday, Erdoğan warned that he knew who was behind the lira sell-off, which he said was being orchestrated with local help.

"I am calling on those who engage in such activities on the eve of elections, we know all of your identities,” he said. “We know what all of you are doing. Know this, after the elections, we will present you with a heavy bill.”

Turkey’s lira slumped more than 4 percent on Friday, prompting the central bank to announce that it was suspending weekly sales of one-week repo at the benchmark rate of 24 percent. The lira partly erased those losses on Monday, rising 2.7 percent to 5.6 per dollar, after the central bank said there was nothing unusual behind a decline in its foreign currency reserves. The bank’s net reserves shrank $6.3 billion to $28.5 billion in the two weeks to March 15.

Turkey’s banking watchdog and market regulator have begun a probe into banks including JPMorgan after complaints that the U.S. investment firm was manipulating the price of the lira, they said on Saturday. The accusations appeared to be based on a research report by JPMorgan that recommended clients sell the lira for dollars.

Akbank, owned by Turkey's prominent Sabancı family, fell 4.9 percent to 6.05 liras on Monday. Garanti Bank, the Turkish unit of Spain's BBVA, dropped 5.7 percent to 8.66 liras. 

The lira lost almost a third of its value against the dollar last year as concern among investors over an overheating economy was exacerbated by a political crisis with the United States over the detention of a U.S. pastor on terrorism charges.  

Turkish banks are at the centre of a subsequent economic downturn that has caused corporations to default on their debts or seek to restructure their loans. Non-performing loans are on the rise in Turkey, prompting Moody's and Standard & Poor's to warn about possible downgrades of banks' credit ratings.