* Bank Asya put under scope of Article 70 of bank law
* Article 70 allows BDDK to force staff changes, merger
* Bank has seen huge deposit outflows, rise in bad loans
By Ozge Ozbilgin
ISTANBUL, Sept 4 (Reuters) - Turkey's bank watchdog has taken sweeping powers at Islamic lender Bank Asya, which has seen depositors flee and bad loans soar since it became caught up in a political power struggle, a source at the watchdog said on Thursday.
The move gives the BDDK watchdog the power to restrict or temporarily halt Bank Asya's operations, as well as to merge it with another bank.
Bank Asya's profits and capital base have collapsed since December, when it was caught in power struggle between then-Prime Minister Tayyip Erdogan and his friend-turned-foe Fethullah Gulen, an Islamic cleric whose sympathisers founded the bank.
The source said Bank Asya had been put under the scope of Article 70 of Turkey's banking law, which regulates BDDK's intervention in troubled banks.
Bank Asya was not immediately available to comment.
Among other powers, Article 70 allows BDDK to force staff changes in a troubled bank, including the top management, with new staff to be approved by the watchdog.
Following his victory in the presidential election in August, Erdogan has repeatedly said the campaign against Gulen's movement would intensify.
Last month, the government cancelled tax collection and social security contracts with Bank Asya, a move seen by observers as an attempt to weaken the lender.
However, Bank Asya said those actions would not have a significant impact on its activities.
Ratings agency Moody's cut the bank's rating by eight notches in two actions recently.
The Sabah daily newspaper said that if the planned BDDK measures did not save Bank Asya, the bank would be taken under the scope of Article 71 of the banking law, which allows the BDDK to order the Savings Deposit Insurance Fund (TMSF) to seize a bank.
State-run Ziraat Bank scrapped talks to acquire the Bank Asya last month. Bank Asya shares were suspended and removed from all indices.
The bank attempted earlier this year to form a strategic partnership with Qatar Islamic Bank (QIB), but sources close to the matter told Reuters last month that QIB and Bank Asya had ended the talks after a disagreement over price. (Writing by Ece Toksabay; Editing by Asli Kandemir and Mark Potter)