UPDATE 1-Turkish regulator drops days-old FX trading ban on UBS, Citi, BNP

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(Adds details from letter, context, comment)

ISTANBUL, May 11 (Reuters) – Turkey’s BDDK bank regulator is dropping a trading ban imposed last week on UBS, Citigroup, and BNP Paribas because they have fulfilled foreign exchange obligations promptly, according to a letter the BDDK sent to banks on Monday.

The three foreign banks – which were hit with the ban on Thursday when the Turkish lira fell to a record low – have now “fulfilled their obligations in a reasonable time frame,” said the letter seen by Reuters and confirmed by a BDDK spokesman.

A BDDK investigation into UBS AG, Citigroup Inc , and BNP Paribas continued, the letter said, but gave no details.

The ban was one of a few protective measures adopted by the government on Thursday when the lira tumbled intraday to 7.269 versus the dollar, its weakest ever.

Legal actions were also launched against London-based financial institutions, a state news agency said on Thursday, and regulators were given more authority to prosecute market manipulation.

The BDDK said at the time the three banks did not fulfill lira liabilities in due time, and the ban covered units of the trio in other countries.

Dropping the ban was positive because it “was trying to use a sledgehammer to crack a walnut,” said Tim Ash, senior emerging market sovereign analyst at BlueBay Asset Management.

The ban risked collateral damage to both foreign institutional investors and local businesses clearing lira transactions through these banks, Ash said. (Reporting by Ebru Tuncay and Jonathan Spicer; Editing by Daren Butler and Mark Potter)

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