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Türkiye's planned merger of three state-owned participation banks could create the country's largest participation lender, strengthening competition and supporting growth across the sector, Fitch Ratings said on Thursday.
The ratings agency said combining Ziraat Katilim, Vakif Katilim and Halk Katilim would give the new institution greater scale and a stronger franchise. However, it noted that the ultimate impact will depend on the merger's execution and the capitalization of the combined bank.
"The planned 3 participation banks' merger could support this market's competitiveness and growth," Fitch said. "The credit impact would depend on merger execution and the new entity's business strategy and capitalization."
President Recep Tayyip Erdogan announced the planned merger on June 5 during the 3rd World Islamic Economy Summit, describing it as one of the government's next steps to accelerate the development of participation banking.
If successfully implemented, the merger could improve efficiency and profitability while helping attract new external capital. Fitch also said the planned initial public offering of Turkiye Emlak Katilim Bankasi could further support the sector by bringing in fresh capital.
Fitch said the announcement reflects the Turkish authorities' continued commitment to the sector.
"The segment accounts for 9.5% of total banking assets, with state-owned participation banks holding 4.3%. We expect it to keep gaining market share in 2H26, supported by strong internal capital generation and growth appetite," the agency said. "Continued expansion reinforces the segment's strategic importance."
The three banks earmarked for the merger accounted for 3.4% of Türkiye's total banking assets at the end of March 2026, representing about 36% of the participation banking market.
According to Fitch, the combined institution could strengthen its standalone credit profile through greater scale while becoming Türkiye's largest participation bank.
Fitch cautioned that detailed plans for carrying out the merger, including its timetable, have yet to be announced. "The merger could give rise to execution risks, and Fitch is not aware of any plans for recapitalization following the merger," the agency said.
However, it also added that it does not expect the merger to materially change its assessment of government support for the state-owned participation banks in the near term.
Although the merged lender would be larger, participation banking's strategic importance to the government—and the state's willingness to support the sector—would remain unchanged, it said.
The ratings agency also pointed to growing competition within the sector. It noted that discount retailer BIM recently secured regulatory approval to establish a participation bank, while conventional banks entering the segment could also support future growth.
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