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Turkish bank watchdog probes deals during record currency sales: bankers


By Nevzat Devranoglu

ISTANBUL (Reuters) - Turkey's banking watchdog is investigating banks' foreign exchange deals at the start of this week when the central bank sold a record $2.25 billion at currency auctions, senior banking sources said on Wednesday.

It was not clear why the BDDK was seeking details of the July 8-9 transactions and the watchdog was not immediately available for comment.

The sources told Reuters the BDDK wrote to banks on Tuesday asking for details of auction bids and for what purpose they had bought foreign currency.

"They sought all information on when forex was bought, at what level and by whom on all transactions of more than $2 million," said one bank executive familiar with the matter.

The local lira currency hit an all-time low of 1.9737 against the dollar on Monday. It rebounded after the central bank sold a record $2.25 billion of hard currency, and traded at 1.9430 on Wednesday morning.

The lira sell-off begun in early May after the U.S. Federal Reserve began to signal it may scale back its stimulus measures, which have pumped up asset prices and pushed down yields worldwide.

Weeks of fierce demonstrations since last May against the perceived authoritarianism of Prime Minister Tayyip Erdogan's government have also weighed on the lira, although the protests have since calmed.

Erdogan has accused domestic and foreign speculators and what he calls an "interest-rate lobby" of fomenting the unrest to undermine Turkey's increasing affluence.

Turkey's central bank began holding forex auctions on June 11 to support the weakening lira. It has sold a total of $4.9 billion this year including Monday's record sale, reducing its net foreign reserves to around $41 billion, according to bankers' calculations.

Analysts say the central bank's interventions may not be enough to defend the currency, and that it may have to resort to raising interest rates.

Last month, Turkey's Capital Markets Board launched an investigation into financial orders at brokerages, with a focus on foreign stock transactions, during a period of high market volatility in the previous weeks.

The markets regulator requested information on brokerage staff, copies of research reports and logs of communications with customers over the period of May 20 to June 19, in what sources close to the matter described an unprecedentedly broad investigation.

(Writing by Daren Butler and Seda Sezer; Editing by John Stonestreet)