Turkish State Banks Set to Exit Russia’s Mir on US Warning

bloomberg: Turkish state banks are planning to exit a payment system used by Russians, a dramatic example of how US secondary sanctions are forcing countries to distance themselves from Moscow.

The three lenders, the only ones in Turkey still processing transactions made with Russia’s Mir cards, decided on Tuesday to pull out, a senior Turkish official said, asking not to be identified because the information isn’t public. The lira reversed losses to close slightly higher after the news.

Turkey’s Ministry of Treasury and Finance declined to comment.

The decision by Turkiye Halk Bankasi AS, TC Ziraat Bankasi AS and Turkiye Vakiflar Bankasi TAO to stop using Mir marks a turnaround in the Turkish stance on sanctions targeting Russia. President Recep Tayyip Erdogan has performed a delicate balancing act since Russia’s invasion of Ukraine began in February. He’s refrained from participating in sanctions announced by the US and the European Union, and has been meeting and negotiating with Russia’s Vladimir Putin.

But the Turkish president’s posture began showing signs of a subtle shift since he traveled to the US for the United Nation’s annual meetings last week.

Immediately after his return, Erdogan summoned his top officials including Treasury and Finance Minister Nureddin Nebati to discuss alternatives to Mir. On the same day, Erdogan’s spokesman Ibrahim Kalin went on a national TV channel to declare that Turkey is firmly on Ukraine’s side in the war, calling on Russia to withdraw from territories it occupies.

And meanwhile, a company run by Erdogan’s son-in-law delivers highly effective drones to Ukraine as it defends itself against the invasion.

The decision also come as Turkey has seen a swell of Russian nationals come across its borders as the Ukraine invasion sent people, especially the rich, scrambling out of Russia. Russians topped Turkey’s ranking of monthly home sales to foreigners in April for the first time and have been the top foreign buyers every month since.

OFAC Warning

Earlier this month, the US Treasury’s Office of Foreign Assets Control, or OFAC, warned financial institutions against entering new agreements or expanding existing ones with the Russian operator of Mir cards.

Turkiye Is Bankasi AS and Denizbank AS, two Turkish private lenders, were the first to suspend participation in Mir last week. Mir cards are popular among Russian visitors and bring foreign income to Turkey during the tourist season.

Tourism is a key source of revenue as Erdogan tries to avert another run on the lira, while he prepares to run for re-election next year. He is also using his diplomatic role in the war to boost his domestic standing.

Erdogan has positioned Turkey as a mediator, and helped secure deals to resume grain shipments from Ukraine’s Black Sea ports and more recently, for prisoner exchanges between the warring sides.

He’s also publicly defended Putin against sanctions and urged nations not to “underestimate” Russia.

Erdogan’s relations with Ukraine, including the supply of drones, have rankled Moscow.

But Ankara remains a key partner for Putin as international sanctions shutter other routes for trade, travel and investment.