Merger of Turkish state-owned participation banks could boost segment competitiveness: Fitch

Türkiye’s planned merger of three state-owned participation banks could support the competitiveness and growth of this market segment, Fitch Ratings said Wednesday.

The credit impact would depend on the execution of the merger, as well as the new entity’s business strategy and capitalization, the agency said in a note.

Turkish President Recep Tayyip Erdogan announced the plan on June 5 at the 3rd World Islamic Economy Summit, saying Türkiye aimed to publicly list Emlak Participation Bank.

“Another step will be the merger of Ziraat Katilim, Vakif Katilim and Halk Katilim banks. With their forces combined, the sector will gain a different momentum,” Erdogan said.

Fitch said the announcement signaled the authorities’ continued commitment to participatory banking, which accounts for 9.5% of Türkiye’s total banking assets. State-owned participation banks hold a 4.3% share.

The agency expects the segment to keep gaining market share in the second half of 2026, supported by strong internal capital generation and growth appetite.

The three banks planned for merger are Ziraat, Vakif, and Halk participation banks, the last of which is not yet operational.

They had a combined sector market share of about 3.4% at the end of March, equal to around 36% of participation banking assets, Fitch said.

The merged entity could become Türkiye’s largest participation bank and achieve stronger standalone creditworthiness through greater scale and a stronger franchise, the agency said.

However, Fitch noted that detailed plans and a timetable for the merger have not yet been announced, adding that the process could create execution risks.

Fitch also said it was not aware of any recapitalization plans following the merger.

The proposed initial public offering of Emlak Katilim Bank could support its capitalization through access to fresh capital, depending on its pace of growth, the agency said.

However, Fitch does not expect the listing to alter the bank’s Government Support Rating, as it is expected to remain majority state-owned after the IPO.

Fitch said the ratings of Ziraat Katilim and Vakif Katilim are aligned with Türkiye’s sovereign rating and driven by potential government support, reflecting state ownership, the strategic importance of participation banking and a record of capital injections.

The merger is unlikely to immediately change Fitch’s view of potential government support, it added.