* Banks investigated for possible interest rate fixing
* Bank Association denies any wrongdoing
(Adds comment from bank association)
SOFIA, July 13 (Reuters) - Bulgaria's antitrust watchdog said on Monday it had launched a probe into claims the Balkan country's banking sector operated a cartel that fixed interest rates and market share distributions.
The Commission for Protection of Competition raided the office of the Association of Banks in Bulgaria (ABB) and confiscated documents, it said in a statement.
The commission was investigating whether commercial banks conspired to fix interest rates on both deposits and credits, among other allegations, it said, but did not specify the timeframe.
"We are investigating the banks for possible illegal agreements. These probes are very complicated and usually take a year," a commission spokeswoman said.
The watchdog initiated the probe after scrutinising developments in the sector, it said, without giving details.
The bank association, whose members are all banks that operate in the European Union member country, denied any cartel arrangements or other fixings and expressed concerns that the antitrust body used police to seize documents from its office.
"We are not going to obstruct the work of the commission, and we will cooperate," Violina Marinova, ABB chairperson and chief executive of DSK Bank, controlled by Hungary's OTP bank, told Reuters.
"We have no reasons for concerns because there is no cartel agreement," she added.
Petar Andronov, member of the ABB executive board and chief executive of EIBank controlled by Belgium's KBC, branded the probe as "absurd".
"We are giving an award to anyone who can arrange a cartel among 20 foreign-owned banks. We will congratulate anyone who can achieve that. It would be a miracle," he said.
About 80 percent of the 30 commercial banks operating in Bulgaria are foreign-owned, with the biggest lenders run by Italy's UniCredit, OTP, Greece's National Bank of Greece and Austria's Raiffeisen.
The banks have significantly curtailed lending since October, as a result of tighter global liquidity during the economic downturn, and have substantially increased interest rates on both deposits and loans.
The central bank declined comment on the probe.
Bulgaria operates in a currency board regime, which pegs its lev currency to the euro and significantly limits monetary policy. Under the regime, the central bank does not set the main interest rate which is based on the overnight interbank rates. (Reporting by Tsvetelia Ilieva; Editing by Jon Loades-Carter)