Turkiye Garanti Bankasi AS

IST:GARAN.E

Earnings Call Transcript 2021-Q2

[Handan Saygin, executive]

Welcome, everyone. Thank you all for attending our first half 2021 financial results call. We're here once again to proudly present another set of outstanding results. Before we start presenting our financials, I would first like to brief you on the macro outlook, now that 7 months to the year behind us.

As we have all seen, start to the year was quite strong. First quarter GDP growth that realized at 7%. For the second quarter, we estimate an annual GDP growth of more than 20%. In here, base effect boosted second quarter GDP in annual terms. But also on a quarterly basis, there seems no deceleration especially after the pending reaction of the economy with the reopening since mid-May. Our big data proxy suggests that consumption has started to lose some steam while investment shows an adjustment in June. Led by the current high momentum, we revised our 2021 GDP growth forecast to 9%.

Risks on 2021 GDP growth still seems to be tilted to the upside. Also, upside surprises in exports continue while adjustment in imports is yet to be seen. Tourism revenues might surprise on the positively positive side as our big data proxy signals. We now expect $18 billion for tourism revenues. With that, we forecast the current account deficit by year-end to be $22 billion, suggesting 2.9% in GDP.

Now moving on to the inflation slide, next page. Inflationary pressures remain, given the deepening cost-push factors, continuing exchange rate pass-through, deteriorating inflation expectations and the reopening of the economy with still high domestic spending. What we expect here is that inflation will likely stay around the current high levels until November, and finally decline to 16% at the end of the year.

Tight monetary stance of the Central Bank is expected to remain until inflationary pressures subside, and the Central Bank will likely keep rates higher than our initial expectations. We expect the current policy rate of 19% to remain till October, and only gradual easing is assumed afterwards with 17.5% policy rate at the end of the year.

Regarding the budget balance, the deficit to GDP ratio was realized at 1.7% in June, which was still boosted by strong tax revenues, base effects and relatively controlled expenditures. Accordingly, we revised our budget deficit forecast to TRY 225 billion or 3.5% of GDP by the end of 2021.

Now moving on to our financial results, our remarkable start to the year 2021, it demonstrated once again with a new record in profitability. Soaring quarterly income is a net result of improving fundamental revenues, mainly net interest income and net fees and commissions. In pre-provision income, we already booked TRY 10.6 billion in 1 half of the year upon a year-on-year growth of 8%. Net income growth in the same period was 63%. Net income in the first half, after a year-to-date total free provisions of TRY 950 million, was TRY 5.4 billion.

In the second quarter, management chose to set aside a further TRY 800 million in free provisions on top of the TRY 150 million set aside in the first quarter. On a quarterly basis, free provision adjusted net income growth was a phenomenal 37%. These latest additions to free provisions brought the total on balance sheet to TRY 5.6 billion. Underlying factors to surge in income is purely attributable to our sustainable revenue generation capability.

In a quarter of significant margin pressure due to rising funding costs, we once again could demonstrate a well defense of margins with the support of healthy loan growth and repricing. Add to this, our active management of funding composition, and of course, the strength we get from more than 19 million customers that prefer to bank with us, we are able to generate not only the best in sector margins, but also the best in sector net fees and commissions revenues. So our results in the first half 2021 is an ROAE of 18.3% and an ROAA of 2.1%. If we hadn't set aside the free provisions, ROAE would have neared 20% and ROAA would have been 2.3%.

Let's now move on to explaining the contributors to these results and start with the assets. Year-to-date asset growth continued to be customer-driven and in high-yielding asset classes with increasing weight of Turkish lira. We could grow our Turkish lira loan book by another 6% and bring the year-to-date Turkish lira loan growth to 12%. This growth, especially in a period of significant redemptions, allude to an upside in our expected Turkish lira lending growth for the year that was in the mid-teens.

Despite a heavy TRY 35 billion of loans maturing in the second quarter, not only we could reprice and roll over, but also registered a net increase of TRY 13 billion in our Turkish lira loan book by the end of the quarter. As for foreign currency lending, the year-to-date performance of 3% shrinkage is fully in line with our anticipation.

On the securities front, we continue to strategically manage the portfolio to help write out the volatility. In second quarter, we replaced our redeeming CPI linkers.

Now let's look in more detail to our Turkish lira lending growth on Slide 6. Notice here that we have a well-balanced Turkish lira loan book in business and consumer. The growth booked in the second quarter and year-to-date has been across the board and above sectors. In consumer lending, namely general purpose loans, mortgages and auto loans, our year-to-date growth of 15% led to a market share increase of 110 basis points to 11.3%.

In business banking, where a majority of the redemptions were we could grow by 9% year-to-date and bring the market share to 8.8%. Lending growth in the second half may not be as high, but we would aim to maintain our increased market shares at minimum.

Now moving on to foreign currency loans. The story there is quite different to that for the Turkish lira. We have a continually shrinking book since 2015. This applies also for the sector and is well explained given the high depreciation in currency since then. At Garanti though, the shrinkage has been even more, and the market share lost in 2017 alone has exceeded 2%.

We had a consolidated total of $16.8 billion of foreign currency loans. $4.6 billion are the ones placed by our international subsidiaries to companies abroad with natural hedge. The bank-only total is $11.9 billion, and of this, 13.5% is to exporters, 54% relates to project finance loans, and the rest is mainly working capital loans to blue chip names and multinationals. We periodically conduct foreign currency sensitivity analysis to this portfolio in order to proactively provision and do the necessary staging.

Let's now look at how we fund the assets. Liability side of the balance sheet is also actively managed at Garanti, and it is very liquid. Notice that deposits, both time and demand deposits, and deposits like Turkish lira bonds issued and merchant payables, fund 70% of the assets. More so, notice the level of demand deposits alone funding assets. It has reached 30% which is one distinct area that positively differentiates us and contributes significantly to our performance, to our outperformance as well. More detail on demand deposits actually, we'll give on the next page.

But before that, to wrap up the other funding sources of the assets, a quick look at external liabilities show that it has come down in the quarter after the redemption of our $500 million eurobond in May. Accordingly, borrowing share in assets dropped further to 11.6%. As of the June end, our total external dues were $7.3 billion, of which $1.9 billion is due within a year. And against that, we have $12.5 billion of quick liquidity buffer. In other terms, nowadays, it's sixfold the need.

Other indicators also confirm our high liquidity. The liquidity coverage ratios shown on the bottom right-hand side suggests levels well above the required minimums.

Now moving on to the deposits. In a quarter of high Turkish lira lending, we had even a stronger 15% customer deposit growth. That enabled us to fund the entire Turkish lira lending growth with deposits. Benefiting from our strong franchise and our ability to penetrate the customers effectively, the primary source of this growth was from the stickier retail and SME depositors.

Demand deposit growth as well was very visible and clearly reflects customers' choice of Garanti as their main bank. In the second quarter, customer demand deposit growth alone was TRY 16 billion. Demand deposits share in total remain at an outstanding above 40% level despite the high rate environment. Clearly, they contribute very positively in reducing our blended funding costs, significant impact of which is seen on margins, especially at the time of loan growth and repricing at high rates.

Now speaking of margins, let's -- on this page, unlike what was feared for margins, following the latest 200 bps rate hike in March -- that second quarter margin could be worst reading of the year. We once again demonstrated a good defense and started seeing sequential core margin expansion. Even though the financial results due to denominator impacts suggest flat for NIM at 3%, our NIM calculated based on daily averages suggests improving quarterly margins.

This trend in the results can actually be seen in the net interest income figures on the right-hand side. In the second quarter alone, core net interest income could increase by 6%, helped by the CPI book hedging a portion of the balance sheet. Net interest income growth in the quarter was 10% and margin increase was 16 basis points.

Looking at the cumulative margin, it now reached 3.9% and represents a year-to-date drop of 140 bps suggesting that we are right on track to meet our margin guidance of 100 bps lower reading by year-end. In margins, we have already seen the trough in the first quarter, and sequential improvement has already started.

Now moving on to the topic of asset quality on the next page, in Slide 11. You can see on the left-hand side the loan portfolio breakdown in terms of staging of our gross loans that are now TRY 406 billion. 4% is NPL; 16% is in Stage 2; and the rest, 80%, is in Stage 1. Stage 2 total is just slightly in the second quarter due to higher-than-expected economic activity, both domestically and globally, that led to some relief in SICR portion. Some files and watch list got moved to restructured buckets and accordingly, nearly half of our Stage 2 is now restructured portion.

In the quarter, we further increased the Stage 2 coverage to 17% from 15.6%. The 90 to -- I mean, to be exact, it's 16.7% from 15.6%. The 90 to 180 days filed balance classified under Stage 2 is currently TRY 1.4 billion. Following the lift of forbearance in September, this balance may end up in -- likely will end up in NPL and increase the NPL ratio by 40 basis points, while no further provision expense will be necessary as they're already highly provided as if they're NPL.

So continuing with asset quality on next page, it strikes that the asset quality metrics are faring better than anticipated. NPL ratio is down to 4%, even though helped by the denominator growth and write-downs. New NPL inflows continue to stream slow, and collection performance remains strong. Year-to-date, collections are already near TRY 1.5 billion.

Our net cost of risk dropped below 1% level as of the first half of the year. We expect the risk costs to normalize and converge to the average levels of recent years going forward. However, as we started the year better than what we initially anticipated and have strong buffers, upside risks prevail.

Although we haven't seen a material NPL inflow due to the forbearance measures regarding recognition days, we have maintained our firm stance and kept NPL coverage stable at 66%. And note that involving -- including the write-downs that are mainly fully provisioned, 100% provisioned, the NPL cash coverage ratio is at a very high level of 75%.

Moving on to the next page on Slide 13, you see our net fees and commissions performance. We have displayed tremendous performance in the first half of the year with a 33% growth on top of sector's highest base and fees. Note that this robust fee generation is broadly coming from our bank's organic capacity owing to our increasing penetration, supported by digital environment. More visibly, payment systems and lending-related fees play a fundamental role in this performance.

The higher rate environment was supportive of our payment systems fees, where the performance is well above our anticipated level with a 39% annual growth. Cash loan fee growth performance was in line with our lending growth and expanding customer base. We could grow our cash loan fees by 34%. On top of the high base of last year, that included early payment fee. Money transfer fee growth registered was also a striking 43%, with complements of our best-in-class digital capabilities.

Now let me share with you a brief update on our digital capabilities. Our digital customers exceeded 10 million, and mobile portion alone registered an impressive 39% growth since first half 2019, nearing 10 million customers. In the same period, digital channel transactions soared by 45%.

The highly anticipated digital onboarding was launched on May 1, and since then, 10% of the customer acquisition at Garanti has been through digital onboarding. Our internally developed Contactless Customer Becoming Technology enables a fast, time-and-place-independent experience for customers compared to traditional methods. We have full confidence that this technology will facilitate the spread of digital banking services to the masses.

Now moving on to the operating expenses, the growth was 18% on an annual basis. The currency depreciation impact constituted 3% of the annual growth, which actually has no bottom line impact since it's 100% hedged. So in a currency-adjusted way, operating expense growth was 15% in the first half year-on-year. Even though high inflation environment, together with currency depreciation, caused an upward pressure on our expenditures, we maintain our cost growth in line with the full year guidance of around average CPI.

We continuously realize efficiency gains in non-HR-related costs under the new work environment. So taking into account the currency adjusted cost, cost income ratio was 37.4%. Operating expenses and assets was at 2.3% and fees coverage of operating expenses was 65.5%.

Now moving on to the capital, we sustained our robust capital even after currency hit and dividend payments. Our capital adequacy ratio, excluding BRSA provisional forbearance is at 16% and core equity Tier 1, 13.4%. This level points to TRY 19 billion of excess capital on a consolidated basis. So our capital buffers continue to remain strong as we sustain our capital-generative growth strategy.

Now another measure we highly prioritized and would like to update you on in this opportunity is our approach to sustainability. As Garanti BBVA, we have carried on with our environmental, social and governance investments. We're not just managing our bank's environmental impact, we are contributing to a sustainable world by offering green products to our customers and by designing our services to enable our customers to adopt more sustainable approaches. As Garanti BBVA, we commit to provide TRY 1.5 billion of sustainable financing and procure at least 80% of the bank's energy needs from renewable resources in 2021. We aim to end 2021 actually well above the committed TRY 1.5 billion with a placement of TRY 5 billion to sustainable finance.

We have been financing only renewable energy projects since 2014. Now we have 0 coal financing commitments as of 2021, and we're a carbon-neutral bank as of 2020. At Garanti BBVA, we have been responding to CDP Climate Change since 2009 and CDP Water since 2015 and publicly share all our reports. We became the only financial institution to qualify for the CDP Climate Leader in Turkey, and the only company from Turkey to qualify to be included in the Bloomberg Gender Equality Index for 5 consecutive years. And also, we are proud to be included in the Dow Jones Sustainability Index for 6 consecutive years.

Now before wrapping up with the first half results, we'd also like to sum up our current expectations and trends versus our initial beginning-of-the-year guidance. First half performance points to a clear upside to our full year operating plan guidance. In Turkish lira loans, the strong growth already registered in the first half suggest an upside to our mid-teens guidance for the whole year. It seems high teens, even around 20%, may be achievable.

In foreign currency lending, shrinkage guidance remains. NPL ratio and cost of risk metrics are faring much better than our guidance as well as the fee growth. We maintain our margin and operating expense -- we will likely maintain our margin and operating expense growth. But when you sum this up, it alludes to a clear upside to our ROAE guidance. Likely, it will end at the high end of the mid-teens or maybe even better than that. But later, we will be -- would you like to...

[Recep Bastug, executive]

Yes, maybe I may add some comments before getting your questions. There will be -- I think we need to renew our guidance from -- to the year-end in a positive manner because OpEx will stay in CPI level. It will not be changed. Net interest margin, 100 bps contraction, it will stay. Foreign currency loan shrinkage, it will stay. Other than those 3, all items will be positively renewed. So we will announce you what will be the new level of our operating plan to year-end. It will be shared with you very soon. So everything will be renewed in a positive side. It is my short message.

[Handan Saygin, executive]

Okay. So with this, we would like to leave the floor to you for questions you may have. Thank you for listening.

[Operator]

[Operator Instructions] We have the first question from [ Molit Musein ].

[Unknown Analyst]

I have 3 questions. First of all, if you could talk about the expected quarterly core NIM trajectory that you expect for the rest of the year. So you did talk about that you're starting to see an improvement. But if you could help us understand how you expect this to shape up on a quarterly basis in the third quarter and the fourth quarter, that would be very helpful.

Secondly, as you said, Handan, there has been, in Stage 2, there has been a migration towards restructured loans, and you have increased your Stage 2 provisions. If you could talk about the performance and the expectation for the restructured loan book or trends that you are seeing, what do you expect with this book, that would be very helpful.

And the third question is on loan growth, very solid, which was very good to see. But we're also seeing relatively solid trends for the sector. And I was wondering what kind of competitive pressures are you seeing. Or maybe it's too early to talk about competitive pressures, especially from public sector banks, which seem to be lending at low profitability. So your thoughts on these 3 questions would be highly appreciated.

[Recep Bastug, executive]

Okay, thank you, [ Molit ]. My first question -- my first answer related with the core NIM, I think as you see in -- the first half was the worst one. So we left it. To the year-end, we have -- we don't share the daily numbers with you, but there is an improvement. As you see, they are 3% flattish in the -- between the 2 quarters. But in real terms, you don't see it due to numerator -- denominator effect, that is 25 weeks improvement in real terms, and to do year-end, it will be improved.

So as you see, 5.3% was last year's NIM. 100 bps -- less than 100 bps contraction will happen. So there will be a slightly, starting with the third period, and it will be accelerated in the fourth period. So you will be seeing strong net interest margin acceleration at the end of third quarter -- fourth quarter, sorry.

So the second one, there is a migration from watch list to restructured. That was under our plan. Two big files were restructured. So it is the movement of those 2. The total amount, it was about TRY 7 billion.

Answer to your -- so the third one, the public banks in loan growth, how do we see. First of all, in general, we do better than the market average, including state banks or including private banks. Now state banks are now operating rationally without distorting competition. Our strategy remains the same, gaining market share without sacrificing spreads focusing on improvement -- improving customer experience and increasing contribution from digitalization.

State banks have a different mandate in terms of both growth and also pricing. They had this strategy before the pandemic period and during the pandemic period. But now they are rational, so we don't see any irrational movement in the competition. So under this environment, we are able to get market share without sacrificing anything. So we don't expect any different movements in the competition.

And also, as Handan mentioned, our TL loan growth will around 20% by the end of the year, around 20%. Maybe 19%, maybe 18%, but close to 20%. Sector will be growing around 12% to 15%. Our growth will be more than sector.

[Unknown Analyst]

Understood. Just one final thing, if I may check. On ROE (sic) [ ROAE ] guidance, you did mention that there's even upside to what you mentioned. But I was just trying to think, is there any reason to believe otherwise, that second half ROE should be better than first half ROE? I mean, would it be fair to assume that second half ROE would be better than first half, one, because you had 3 provisions of TRY 950 million in the first half, margins were lower.

So if I were to kind of extrapolate lower fee provisions, then it seems, as you were alluding to, the ROE for the full year could be outside the mid-teens, actually 19%, 20%, as Handan mentioned, your conservatism is just matter of timing? Or is there anything in your mind which concerns you or is basically the plan to take further fee provisions to just boost buffers ahead of next year?

[Recep Bastug, executive]

First of all, in the first half, cost of risk, especially in the second quarter, were very low. But I think we are going to get a normalized cost of risk in the second half. That is the reason our return on average equity will be close to this number, but close to this number. More or less, it will be around this number.

I cannot tell you that it will be much more than this level due to normalization in cost of risk. Because in the first half -- for first quarter, cost of risk was 1.39%. In the second quarter, it was 39 bps. So this was an exceptional quarter. There was an impact due to that one. But as I said to you, there will be a normalization in coming quarters. That is the reason. Return on average equity will be around this level, I think.

[Operator]

We received a text question from Valentina. She asks can you please update us on your issuing plans? Should we expect Garanti to refinance anytime soon the Tier 2s callable in May next year, similarly to one of your peers that already did so.

[Recep Bastug, executive]

As you see, our foreign currency liquidity buffer is about $12.5 billion. It is the lowest level. It is around $13 million. As we are not in need of an urgent foreign currency liquidity or a senior issuance, and as we are at comfortable level at the capital adequacy ratio for a Tier 2 issuance, issuance will depend on the market conditions.

We have a call opinion for our Tier 2 issuance in May 2020. We may exercise this call opinion and may consider to issue a new Tier 2, depending on the market conditions. We have not decided yet. We have enough time, so we will evaluate the market conditions in coming months.

[Operator]

[Operator Instructions] We have a question from Alan.

[Alan Webborn, analyst]

Could you just give us an idea of the rationale in taking yet more pre-provisions in the second quarter? Yes, it's nice to have them, but you're rather better provisioned than most in terms of that. That's now very large stock.

And how do you think about what is a rational use of free provisions? Because you've been through a few years of tough times, and all you do is put more away. And it would just be interesting if you're talking about moving to a normalized level of risk costs when it becomes time to stop putting free provisions away and to start reversing. That would be just interesting to hear your thoughts on that one. That was the first question.

The second question, thanks again for putting it up. But you -- the slide on ESG, it's difficult to work out which is a BBVA goal and which is a Garanti goal. And I wondered is it Garanti that's achieved its Scope 1 and Scope 2 emissions already? And if so, what do you do going forward?

And I just wondered what the priorities of a Garanti are over the next couple of years. And whether there are any specific commitments that you've made that you'd like to share with us at the moment. That would be helpful. Just to make the distinction between what's a BBVA pledge and what's your own, that would be great.

And I guess sort of thirdly, in terms of the second half of the year. Clearly, when you made your budget, you were expecting rates to come down more. And it's admirable that you think that you can grow further more in TL lending. Are customers on the retail side just not price sensitive? Or is it because rates were so high at one point, that now it all seems fairly reasonable even though outside of Turkey, most of us would see a sort of 20%-plus interest rate slightly difficult to manage. And I just wondered where you think your customers are relatively speaking on that front.

[Recep Bastug, executive]

Okay, on the first one, what is the optimum level for provision. Frankly speaking, I don't know the answer of this question. Why do we allocate free provision as much -- as long as we are able to generate this level of profit. So we have a comfort sum to allocate some free provisions with this level.

Especially for this quarter, as you see, maybe one of the lowest cost of risk I have ever seen during life -- the last 5 years or not better than this one. So this is an extraordinary quarter. That is the reason it is very normal. But that is not any specific address for this free provision.

So as you underlined, we have allocated the highest provision in terms of percentage, in terms of number in the sector. Will we continue to do it if there is an opportunity like this one? It may happen. Is it necessarily? Never ever. So this is my humble answer to this question.

The second one, sustainability, one of the most important KPI of Garanti BBVA. We are in line with our holding strategy. And also in the country, we try to be the pioneer of this subject. What are we doing? We committed ourselves to raise a very -- so sustainable carbon footprint to increase the share of renewable energy sources in total electricity consumption to provide TRY 1.5 billion sustainable finance in 2021, and to procure at least 80% of our bank's energy needs from renewable sources. We aim to end 2021 well above the commitment with a placement of TRY 7 billion sustainable finance. And we announced that I think it was at the end of 2020, but mostly, it was clear in 2021. We will not finance any coal power plant. And also -- we're going to -- we stopped doing coal power plants financing, and we are going to clear old coal power plant type of financing from our balance sheet to the end of 2040. 2040, not '14. '14 was over. So this is our commitment.

And also we are carbon-neutral bank as of 2020 in the country. So all our new issuance, I think 99% will be in ESG term, and we will continue to dedicate ourselves to sustainability in coming period.

The third one, how do we evaluate the second half of the year. I think more or less the year is happening as we anticipated. In the first half, as we declared here, it was one of the worst. The margin spreads, the NIM maybe the worst I have ever seen, as I said. But it started to accelerate. It started to be on the positive site.

So in second half, in terms of budget, in all terms, we will be over the budget. I don't see any performance problem, as you have seen in the first half. The second half, according to me, will be better. Because our expectation related with this net interest margin contraction in the beginning of the year, our guidance was less than 100 bps deterioration, contraction. When we announced that, I think some of our peers in their guidance, they gave you 30 bps, 50 bps. But our anticipation were different than them because we expected to get rate cuts after October.

Now it still stays that, but we were expecting in our original model, 300 basis points. But now our expectation is 150. So we recovered this difference from our loan amount and very successful repricing operation during the second half. So to the year-end, there will be 20% TL loan growth.

Will there be any problem with retail and commercial? No, because we have not changed our underwriting strategy. We don't see any problem or difference from our peers in the market, even though we are a little sometimes much more expensive than them. We are able to increase our number better than the market average. So in the second half, you will see it will happen.

[Operator]

[Operator Instructions] We have a text question from [ Kunal Ulu ]. She asks, fee income was impressive in the quarter given May lockdown and impacting the reason that drove this performance.

[Recep Bastug, executive]

In our, first of all, general explanation related to our fee growth guidance, last year, as you know, the regulation and its negative impact to our fee and commission income, started at the end of February. So 10 months, we had full effect just 2 months. We used to get the ex environment.

In general, our fee growth items, just that is TRY 70 million fee from Turkish telecom-related company. Other than that, all our fees and commissions are organically generated numbers. So we were able to achieve robust growth even though the fee commission base of first half of 2021 was very strong.

For full year guidance, okay, that is a clear upside coming from payment systems, fees and other lending-related fees. Merchant fees are linked to the prevailing interest rates in the market since interest rates are faring above our initial expectations. Merchant fees are performing better than the initial budget.

Secondly, we are strategically growing our assets and increasing our penetration, expanding customer base, efficient work of our -- each line of business. Strong presence digital channels enable to us generate revenues.

Cash loans commissions, noncash loans commissions, insurance commissions, brokerage, across the board, I cannot tell anyone we are missing -- we are lagging behind target. Every commissions item, as of -- at the end of first half are over the budget. And it will continue with the strength to the year-end.

33 plus percent is very strong and high percentage. It may be a little behind that because, as you know, our guidance was mid-teens. It is much more than that. You will see that one as well with a good performance. Second half will be very similar to first half, but maybe a little below than this performance.

[Operator]

And we have a text question from [ Gabor ]. At CPI -- sorry. Just one second. What CPI assumption is included in the 100 basis point contraction guidance? And what did you assume in the second quarter? So what was the adjustment do you assume in the second half?

[Recep Bastug, executive]

Okay, Aydin is here, our CFO. He will answer to this question.

[Aydin Güler, executive]

Yes. In our first operating plan guidance, our CPI full year target was 18%, 17% to 18% levels. So we keep it as it is, although today, Central Bank of Turkey's announcement, they increased their inflation target from 12% to 14%. So I think we -- think it will be higher than this level.

So I think we will have 18% -- around 18% year-end, October, October, of course. I mean this is -- they are paying so much file to the year-end. So everybody knows in October, October inflation we are talking about. So year-end will be like 16% to 17%, another point. But for the evaluation of CPI increase, we need to take care of October, October readings anyway.

[Operator]

Thank you. And it seems like we don't have any questions left. So this concludes the Q&A session. I'm leaving the floor to our presenters for closing remarks.

[Recep Bastug, executive]

Okay, I want to thank you all for attending today. I am proud of saying that second quarter 2021 marks a new record in profitability for us. Our robust stance is clearly evident in our numbers. Once again, we were able to demonstrate our high-quality earnings generation capability.

I would like to thank my colleagues for their great contribution, and to all our stakeholders for their support and trust in this journey. Stay safe. Thank you.