In light of the Turkish lira's sharp decline against the U.S. dollar so far in 2018, the European Central Bank has expressed concerns over the exposure to Turkey of some of Europe's biggest lenders, including Spain's Banco Bilbao Vizcaya Argentaria SA, Italy's UniCredit SpA and France's BNP Paribas SA, the Financial Times cited two people familiar with the matter as saying.

The Single Supervisory Mechanism, the ECB arm that monitors the region's largest banks, has been looking closely at banks' links with the country over the past few months, as the lira has weakened by roughly 35% against the U.S. dollar since the start of 2018, according to the report. The currency hit an all-time low of roughly 6 lira to the dollar in the morning of Aug. 10 after closing roughly 5% lower the previous day due to concerns about Europe's exposure to Turkey, the FT noted.

The ECB is said to be worried about the possibility that Turkish borrowers might default on foreign-currency loans, which comprise approximately 40% of Turkey's banking sector assets, if they are not protected against the lira's decline. The local banks are exposed too, because of the sheer scale of foreign-currency borrowing in Turkey, the FT said.

However, the finance ministry of Turkey maintained that a robust capital structure and solid balance sheets will protect the country's banking sector, according to the report.