ISTANBUL (Reuters) – Turkey’s benchmark stock index fell more than 2 percent yesterday, led by blue chip banks after the country’s banking watchdog seized Pamukbank ahead of a planned merger with sister bank Yapi Kredi. Turkey’s banks were at the heart of financial crises in November 2000 and February 2001 that sparked a punishing recession and necessitated a multibillion-dollar bailout by the International Monetary Fund. The ISE-100 index ended down 2.05 percent at 9,378.43 points but off an earlier low of 9,066.2 points. The bank sector index fell 2.75 percent. Trade in Is Bankasi C series shares was the busiest as they fell 4.9 percent to 4,850 lira, closely followed by Garanti Bankasi, down 2.2 percent at 2,225 lira. Of the 284 shares traded, 200 fell, 42 rose and 42 ended unchanged. Before regulators stepped in, Cukurova Holding, one of Turkey’s big industrial groups and the leading shareholder in Pamukbank and Yapi Kredi, had planned to merge the two. The watchdog also replaced Mehmet Emin Karamehmet, the head of Cukurova Holding, on Yapi Kredi’s board of directors. Brokers said yesterday’s operation would produce short-term falls in shares but would make the banking sector more robust. «The takeover of Pamukbank by the fund is negative for the short term but it is positive for the restructuring of the sector in the medium term,» said Mahir Ulutas at Iktisat Investment in Istanbul. Shares in Yapi Kredi, Turkcell and several other shares operating under the Cukurova Group were suspended from trade pending more information. Turkcell told Reuters yesterday that Pamukbank’s seizure and the events at Yapi Kredi would not affect its future operations and it owed no debts to Pamukbank. Economy Minister Kemal Dervis sought to reassure investors that the seizure of Pamukbank would put the sector on a stronger footing. He said an IMF-backed reform to boost the capital of weaker Turkish banks was now complete. «From now on, we will be more in a position to say that Turkey’s banking sector is strong and on its feet,» Dervis told reporters in Ankara. In Washington, an IMF spokesman said yesterday it would likely review progress made under its loan to Turkey by the end of June, a procedure that would free up about $1.1 billion under the $16 billion loan program. The market was also cautiously watching political developments amid concerns stemming from government disagreements over European Union reforms. Daily turnover rose to 256.5 trillion lira ($162.5 million) from Tuesday’s 191.8 trillion.