September 17, 2018 / 8:46 AM / 3 months ago

UPDATE 2-Turkey's Erdogan calls for investigation into opposition role at Isbank, Hurriyet says

* Opposition party holds 28 pct stake in Isbank

* Stake bequeathed in will of state founder Ataturk

* Erdogan questions CHP role on Isbank board

* Comments drive down Isbank share price (Updates share price, adds banks index)

By Can Sezer and Daren Butler

ISTANBUL, Sept 17 (Reuters) - Turkish President Tayyip Erdogan said authorities should look into members of the opposition who serve on the board of Isbank, Hurriyet newspaper said on Monday, knocking the shares of the country's largest listed lender.

Erdogan and his aides have previously called for greater scrutiny of the main opposition Republican People's Party (CHP) over its 28 percent stake in Isbank, bequeathed to the party by Mustafa Kemal Ataturk, founder of the Turkish Republic.

While the CHP does not receive dividends from the stake - those go to cultural associations, as stipulated by Ataturk's will - party members do have seats on the bank's board.

"It owns 28 percent of Isbank shares. It can't get money from there but it has four board members. What do these four members do? This must be looked into," Hurriyet quoted Erdogan as telling reporters on his plane returning from Azerbaijan.

Isbank shares tumbled 5.8 percent to 3.9 lira by 1254 GMT, underperforming a 0.9 percent decline in Istanbul's benchmark BIST-100 index. The Isbank sell-off weighed on banking stocks as well, with the index of bank shares dropping nearly 3 percent.

Isbank said it was too important to be made a subject of political debate, adding that trust in banks needed to be preserved for the sake of Turkey's economy.

The bank said there had been times when Ataturk's 28.09 percent stake had been represented by the CHP and the Treasury, together or separately. "This does not have any impact on our bank's activities or the way it does business," it said.

Since assuming a more powerful executive presidency in July, Erdogan has tightened his grip on the economy and monetary policy, appointing his son-in-law as finance minister and taking charge of the sovereign wealth fund. Fears about growing authoritarianism and the lack of central bank independence have helped send the lira down 40 percent this year.


Erdogan wants to see lower interest rates to spur lending and boost economic growth. He has repeatedly called on listed lenders to extend more credit to the real economy.

Economists say the Turkish economy is headed for a hard landing and banks are likely to see a spike in bad debt.

One of Erdogan's aides, Yigit Bulut, called in 2016 for the nationalisation of Isbank, after the leader of the CHP referred to the president as a "tin-pot dictator".

Authorities previously seized the assets of Bank Asya, a lender started by followers of U.S.-based Islamic preacher Fethullah Gulen, a former Erdogan ally whom the government accuses of masterminding a failed military coup in 2016.

On Monday, the head of the CHP, Kemal Kilicdaroglu, said his party did not interfere in Isbank and was holding the shares out of duty to Ataturk's legacy. He speculated that Erdogan wanted to transfer the stake to Turkey's sovereign wealth fund.

"Everyone needs to respect Ataturk's heritage. None of our colleagues who are part of the Isbank board meddle in its banking affairs, they only carry the honour of representing Ataturk's shares," he told reporters.

"Does he want to transfer it to the wealth fund? This needs to be looked at."

The government started the wealth fund in 2016 to develop and increase the value of Turkey's strategic assets, and has since transferred billions of dollars of state assets to it, including stakes in flag carrier Turkish Airlines, major banks and fixed-line operator Turk Telekom. (Writing by David Dolan Editing by Dominic Evans and Gareth Jones)

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