Islamic Banks in Turkiye Expand Market Share Amid Digital Banking Growth

Islamic banks in Turkiye increased their share of the country’s asset market to 9.2 percent in 2025, up from 8.1 percent the previous year, driven by faster growth in financing and deposits than the broader banking sector, according to a new analysis by Fitch Ratings.

The report showed that by the end of 2025, Islamic banks’ financing market share rose to 7.9 percent from 7.3 percent in 2024, while deposit market share climbed to 10.4 percent from 9.4 percent. Fitch highlighted the emergence of new digital Islamic banks in Turkiye, noting continued investment from Gulf Cooperation Council (GCC) countries.

“Three recently established private Islamic banks, two of them digital, recorded rapid growth in the first nine months of 2025,” Fitch said. “Investment in digital participation banking from GCC countries underscores the potential for further regional investment.”

The agency added that planned new participation banks, alongside the swift expansion of recently established ones, could reshape the sector’s landscape in 2026. Dubai Islamic Bank PJSC’s investment in the digital bank TOM illustrates the interest of GCC investors in Turkiye’s Islamic banking sector.

Turkish authorities have approved the launch of Halk Katilim Bankasi A.S. and Adil Katilim Bankasi A.S., the latter as a digital bank, while the application of BIM Birlesik Magazalar A.S. remains under review. Fitch noted that state-owned participation banks may merge or consider initial public offerings, potentially further transforming the market.

Fitch predicted that Islamic banks’ market share would continue to rise in 2026, supported by strong internal capital and a willingness to grow. However, the agency warned that the non-performing financing (NPF) ratio might rise moderately due to the high inflow of new financing.

The report found that the segment’s NPF ratio increased to 2 percent at the end of 2025, up from 1.2 percent in 2024, yet still remained below the overall sector average of 2.5 percent. Fitch attributed the pressure to high financing rates, persistently elevated inflation, and the vulnerability of unsecured retail and small- and medium-sized enterprise (SME) segments to economic cycles. The agency expects a moderate increase in the segment’s NPF ratio in 2026.

Turkiye’s strong economic and trade ties with Islamic countries across the Balkans, Africa, and the Middle East are supporting the growth of its Islamic banking sector. Fitch highlighted that these connections attract investors and reinforce the sector’s expansion, particularly as digital banking initiatives gain momentum.

The report signals that Turkiye’s Islamic banks are moving from niche players to a more significant presence in the national banking market, with both domestic growth and international investment fueling their expansion.