Türkiye's planned merger of three state-owned participation banks, announced recently by President Recep Tayyip Erdoğan, could support the competitiveness and growth of this market segment, Fitch Ratings said Wednesday.
The credit impact would depend on merger execution and the new entity’s business strategy and capitalization, the rating agency said in an assessment.
"A successful merger that boosted efficiency and profitability could help to attract new external capital, as could the proposed IPO of a fourth participation bank," it added.
The agency said that Erdoğan's announcement on June 5 of the planned merger "signals the Turkish authorities’ continued commitment to participation banking."
Attending the major Islamic finance forum, the president said that three major state-run participation banks would merge, without providing further details on the planned timeline.
Erdoğan said Ziraat Katılım, Vakıf Katılım and Halk Katılım banks would be consolidated, stressing that the move would create "significant synergy" and initiate a new era in the sector.
"Combining the strengths of these three participation banks will create significant synergy. God willing, the sector will gain new momentum," he said at the time.
Fitch, in its review, pointed out that the participation segment accounts for 9.5% of total banking assets, with state-owned participation banks holding 4.3%.
Gaining market share
"We expect it to keep gaining market share in 2H26, supported by strong internal capital generation and growth appetite," it added.
"Continued expansion reinforces the segment’s strategic importance, which is a key factor in our view of potential government support that drives the ratings of the state-owned participation banks," Fitch also said.
Moreover, it noted that the merged entity could achieve "stronger standalone creditworthiness through greater scale and a potentially stronger combined franchise, as it would become Türkiye’s largest participation bank."
Evaluating implications, the rating agency, one of the "Big 3," said that the wider sector implications "would also partly depend on the nature of the merged entity."
"If the new entity targets a more results-driven approach, this could incentivize other participation banks to try to improve their performance, potentially attracting new private investment that would sustain growth," it added.
The entry of conventional banks into the segment could also support growth and competitiveness, it further suggested, recalling that BIM, a major Turkish discount supermarket chain, announced this month that it had received regulatory approval to set up a participation bank with $215 billion in founding capital.
Fitch also said that the proposed public offering of Emlak Katılım, another participation bank, which is more active in infrastructure and real estate, could support its capitalization through access to fresh capital, depending on the bank’s pace of growth.