Good morning, ladies and gentlemen. Today's conference call will be hosted by UniCredit CEO, Mr. Jean-Pierre Mustier, and CFO, Mr. Stefano Porro. At the end of the presentation, there will be a question-and-answer session. Today's conference call is being recorded. At this time, I would like to hand the call over to Mr. Jean-Pierre Mustier. Sir, you may begin.
Thank you very much. Good morning, and welcome to the analyst call for our Fourth Quarter 2020 and Full- Year 2020 Results. With the second wave of the COVID-19 pandemic affecting all the countries in which we operate, let me once again express our deepest sympathies for anyone impacted. As an organization, we will continue to do everything we can to protect the health and safety of colleagues and customers. UniCredit will continue to support its clients, the real economy, and the communities in the countries where it is present. For the full-year 2020, UniCredit delivered an underlying net profit of EUR 1.3 billion. This is an impressive performance given COVID-19 resulted in the worst downturn in the last 80 years, given the EUR 5 billion in loan loss provision we took to strengthen our balance sheet in anticipation of future risk.
This result is also ahead of our guidance, thanks to a better outturn on both cost and the cost of risk. Our cost of risk for the full-year, at 105 basis points, was toward the lower end of our guidance of 100 to 120 basis points. The figure also included 46 basis points of overlay provisions, equivalent to EUR 2.2 billion. You will remember that our aim with provisioning during financial year 2020 was to proactively capture the future cost of defaults in the loan portfolio, and therefore, properly reflect the forward-looking economic impact of COVID-19. The strength of the balance sheet can also be seen in our extremely healthy capital position. We closed the year with a fully-loaded pro forma CET1 ratio of 15.08%, implying a pro forma MDA buffer of 605 basis points. This is a record for the bank. Let's turn to slide five.
Our ability to successfully navigate the last 12 months is a testament to the fundamental strengths of the bank and the team behind it, both of which position UniCredit well for the future. Let me summarize the core pillars of UniCredit investment case today. A fortress balance sheet, a deeply embedded risk and cost culture, and a focus on delivering sustainable results for the long term. Over the last five years, the management team has worked tirelessly to clean up and de-risk the balance sheet. The gross NPE ratio for the group fell to 4.5% as of the fourth quarter 2020, a reduction of over 11 percentage points since the end of 2015, or almost EUR 57 billion in terms of gross NPEs. This transformation reflected a proactive and disciplined approach to risk management.
If we look at the EBA definition for the group, excluding non-core, the gross NPE ratio at 2.6% is better than the average of our European peers. As a pan-European bank, that is the peer group that UniCredit should be compared to. If we look at our fully-loaded CET1 ratio, it now exceeds 15% for the first time ever, an improvement of 4.7 percentage points since the first quarter of 2015. Relative to our MDA, this represents a pro forma buffer of 605 basis points. As I have already said, a record level for the group. The de-risk balance sheet provides a rock-solid foundation for the bank going forward. Let's turn to slide six. Our risk and cost culture are deeply embedded in the bank's DNA. Strict risk discipline manifests itself in our focus on the best-rated clients and a refusal to do volume lending.
All our lending decisions are guided by return and expected loss. The expected loss on new business showed the benefits of this disciplined approach. It has continued to decline since the first quarter of 2015, as has the expected loss on stock. The bank also benefits from a strict discipline in its approach to management cost. Absolute costs have been cut by EUR 2.4 billion since 2015, helped by a near 20% reduction in FTEs, and an almost 40% branch reduction over the same period. Our cost culture also mean that we continue to seek efficiencies. The management team has leveraged the change in our customer behaviors since the start of the pandemic, and a greater embrace of remote channel to accelerate changes in UniCredit service model. The branch optimization program, for example, is now well ahead of schedule. Let's turn to slide seven.
Our culture and our values are a fundamental part of how we run the bank. Our commitment is and remains to do the right thing for all our stakeholders, focusing on long-term sustainable outcomes, not short-term fixes. 2020 saw UniCredit adopt a best-in-class coal policy with the total phase-out of lending to the coal sector by 2028. Be recognized as a top employer in Europe for the fourth year running by the Top Employers Institute, and upgraded by two ESG rating agencies, MSCI and CDP. Public recognition, however, is an outcome, not a target, of UniCredit sustainability commitments. There is a clear ESG roadmap aligned to the highest global standards of policies and principles. Our culture and values are embodied in our people. Through their commitment, professionalism, and hard work, the bank successfully navigated the extraordinary events of 2020.
I am very proud of how the whole bank rose to the challenge. As a team, we have delivered the enhancements to customer service, accelerated digital transformation, and implemented group-wide measures to protect the health, safety, and wellbeing of all the bank shareholder. With a de-risked balance sheet, strict risk and cost culture, and a commitment to deliver long-term sustainable outcomes, the bank is well-placed to support our clients and face the future with confidence. Now, let me hand over to our CFO, Stefano Porro, who will take you through our first quarter 2020 and full-year 2020 results in more detail. He will also host the Q&A later. Stefano, the floor is yours.
Thank you, Jean-Pierre, and good morning, everyone. Let's turn to slide eight. As already mentioned, our fully loaded pro forma CET1 MDA buffer now stands at 605 basis points. This represents an increase of 67 basis points over the quarter, and 293 basis points over the year. The improvement over the quarter is thanks to both higher CET1 capital as well as lower risk-weighted assets. The latter mainly results from lower loan volumes across all divisions, as well as the increase in guaranteed loans in Commercial Banking Italy. Our very strong CET1 MDA buffer allows us to continue to support our clients and the economies in which we operate. It also allows us to start distributing capital to our shareholders, in line with our strategic goals.
In 2021, we plan to both ordinary and extraordinary distribution, equating to a total amount of EUR 1.1 billion, made of EUR 0.8 billion of shares buybacks and EUR 0.3 billion of cash dividends. The buybacks are subject to AGM and supervisory approval. Turning to asset quality, the reduction in gross NPEs has continued with a net reduction of EUR 1.5 billion over the quarter, thanks to the continuing hard work of the team and disposals, mainly from the non-core. As a result, our gross NPE ratio for the group further improved to 4.5%. The better-than-expected performance of our asset quality to date is proof of our strict underwriting discipline. Nonetheless, we expect the gross NPE ratio to increase through full-year 2021 as government support measure run off. We are prepared, having proactively built up loan loss provisions in full-year 2020 via overlays.
In this quarter, we also wrote down the remaining goodwill on our balance sheet, all of which was attributable to the Corporate Investment Bank. This is also due to updated guidance from ESMA to use downside scenarios in impairment tests. Such a write-down has no impact on our CET1 capital, nor our underlying profit, and therefore, no impact on our capacity to return capital to shareholders. Let's turn to the group P&L on slide 10. Revenues stood at EUR 17.1 billion in full-year 2020, down 9% over last year. A key driver of the absolute drop was weaker Net Interest Income. Lower Net Interest Income can be attributed to lower customer rates and partially to our strict underlying discipline, which will contribute to lower LLPs in future. We will never compromise our future asset quality to boost Net Interest Income in the short term.
Costs were lower by 1.2% full-year on full-year, reflecting our strict cost discipline and continued focus on further efficiency gains, which more than offset COVID-19 related expenses. I will comment on revenue and cost components in more detail in the following slides, but I would like to make three specific comments on items below the net operating profit line. The systemic charges were in line with our guidance of around EUR 0.95 billion for FY 2020, mainly influenced by additional contribution to the Single Resolution Fund and Deposit Guarantee Scheme. The loss on investment in FY 2020 is mainly due to the release of the negative FX reserve related to Yapı Kredi transactions, a small adjustment related to the non-core rundown. These were partially offset by real estate disposals in Germany. In FY 2020, the group recognized a negative tax impact despite reporting a loss before tax.
This was largely due to the taxes for real estate sales in Germany. To the effect of non-operating items, such as the losses arising from the disposal of the stakes in Yapı and integration cost. Excluding these non-operating items, the underlying tax rate in full-year was 19%. Let's turn to slide 11. If we look at the distribution of underlying profit across the group in full-year 2020, we can see that our diversified business model underpin a resilient performance at group level in this challenging year. Both CEE and corporate investment banking division stand out, with solid underlying full-year 2020 return on allocated capital of 7.8% and 9.2% respectively. Delivering close to the cost of equity in the middle of the worst downturn in 80 years is a very strong performance.
CIB benefit from a robust client activity and an efficient business model, delivering the best-in-class full-year 2020 cost income ratio of 38.6%, an improvement of 0.2 % points year-on-full-year. CEE is a resilient contributor to the group's profitability, with a full-year 2020 underlying net profit of EUR 7.0 billion. Will continue to be an important growth driver of the bank going forward. Commercial Banking Italy deliver a robust performance at the gross operating profit level, despite the impact of COVID-19 on client activity. Its result was, however, significantly impacted by elevated LLPs, mainly due to overlays and the New Definition of Default. This resulted in an underlying profit of EUR 8 million in full-year 2020. Let's turn to slide 12. Net Interest Income was down 2.3% quarter-on-quarter.
The quarter was characterized by excess liquidity in the system as well as further downward pressure on key market rates. This impacted our net interest income in 4 ways, two negative, two positive. First, weak demand for credit. Average loan volumes fell quarter-on-quarter, with most of the drop concentrated in CIB, CEE, and Commercial Banking Germany, where cash-rich corporates continued to repay loans. Second, lower customer rates. Further reduction in EURIBOR and other key benchmark rates contributed to lower customer rates in all division bar one. Commercial Banking Italy also saw further growth in its guaranteed loan book. While such guaranteed loans are good business, given their low risk and capital consumption, they are written at lower rates than normal loans of an equivalent maturity. Third and positive, lower term funding costs where we benefit from lower market rates. Finally, enhanced TLTRO III terms.
The extension by ECB last December of the favorable borrowing cost by one year doubled the net benefit we expect to receive. The 37 TLTRO III contribution, including this quarter, is a catch-up payment for third quarter 2020 to reflect the announced terms. Looking forward, first quarter 2021 will likely see continued headwinds with abundant liquidity in the market, Euribor having weakened further, demands for credit remaining weak given extended lockdowns, and expected incremental growth in guaranteed loans in Italy. Remember that the fourth quarter 2020 catch-up payment from TLTRO III will not be repeated. We move into the remaining quarters of full-year 2021, we expect net interest income to grow, subject to anticipated recovery in GDP, the pace of which will be determined by the rate at which restrictions ease.
An economic upswing will drive a recovery in demand for credit, a progressive reduction of the excess liquidity in client accounts as deposits get spent or invested, as well as an improvement in our lending mix as we normalize our credit risk appetite. That said, we will not compromise our future asset quality to boost net interest income in the short term. To offset the continued pressure from negative rates, the bank, consistent with local regulations, continues to work on action to pass on the impact to depositor by, for example, expanding the use of excess liquidity fees. Let's turn to slide 13. Once again, I would like to focus my initial remarks on a quarter-on-quarter comparison rather than the normal year-on-year one to better capture the underlying dynamics.
Fees were up 2.5% quarter on quarter, an encouraging performance given the second wave of lockdowns seen in the quarter across our geographies. Investment fees were up 8.4% quarter over quarter, helped by an especially strong contribution from upfront fees. Upfront fees were at their highest level in over two years, thanks to robust sales activity in the network, especially in Commercial Banking Italy. We also saw a strong performance in January. Financing fees also increased, up 7% on the previous quarter, thanks to a strong performance from the corporate investment bank, which benefited from healthy client activity in capital markets and structured finance. In contrast, transactional fees were down 6.3% quarter on quarter, reflecting weaker client activity in GDP-sensitive subcategories, notably cards. For full-year 2020 overall, fees were in line with the guidance we gave last August.
Compared to the prior year, total fees were down 5.2%, reflecting the lockdown impact on client activity in our core markets from the second quarter onwards. The steady recovery in fees quarter-on-quarter from the middle of the year was helped by the benefits of our digitalization strategy. With the introduction of the paperless branch in Italy last summer, for example, we were able to sell more products remotely. In terms of outlook, let me make some general remarks. Investment fees are expected to continue to benefit from liquidity to reach clients shifting deposits into assets under management, subject to market remaining buoyant. While for financing and transactional fees, we expect client activity to pick up from second quarter 2021 onwards, with the pace determined by the rate at which restriction ease and GDP recovers. Let's turn to slide 14.
Trading income in full-year 2020 was EUR 1.4 billion, down 15.4% on last year, as a stronger performance in treasury only partially offset lower client activity. While client-driven trading income rebounded in the fourth quarter compared to the prior quarter, it was still below the level of the same period last year, due to a weaker performance in equity and commodities. Equity and commodities was impacted by less certificate business as client activity shifted towards assets under management products, a move which supported the group's very strong upfront investment fees. Non-client driven trading income was up 20.9% full-year on full-year, mainly thanks to treasury and financial risk hedging. As anticipating earlier in the year, trading income excluding the XVA component normalized in the fourth quarter and was in line with our quarterly guidance. This remains around EUR 350 million on average, excluding XVA.
The lower contribution from dividends, down 34.8% full-year on full-year, was mainly driven by the strategic disposal of stakes in Yapi and Mediobanca over the last 12 months. Let's turn to slide 15. Our continued focus on cost efficiency resulted in cost falling 1.2% full-year on full-year. Our strict discipline allowed us to more than offset COVID-19 related expenses incurred in the year. full-year 2020 total cost amounted to EUR 9.8 billion, slightly better than our guidance of flat costs related to full-year 2019. This was mainly thanks to lower HR costs linked to a reduction in variable compensation of more than EUR 100 million compared to last year, and to lower than expected non-HR costs linked to fewer external supplier-related costs and lower travel expenses. We experienced a higher than usual full view seasonality in non-HR costs.
These were 7.7% higher quarter-on-quarter due to higher IT expenses and security costs, partially offset by lower credit recovery expenses. For full-year 2021, we expect costs to be flat related to full-year 2019. We expect a normalization of variable compensation in full-year 2021, as well as an increase in IT expenses linked to our ongoing investment in digitalization. Let's turn to slide 16. When we announced Team 23 in December 2019, we targeted further reduction in FTEs of around 8,000, an additional cut of around 500 branches. We confirm that FTE reduction is on track, having reached agreement with our trade unions in fourth quarter 2019 and fourth quarter 2020. Meanwhile, the branch network optimization is well ahead of schedule. Our relentless focus on cost efficiency and digitalization continues to yield tangible results. Let's turn to slide 17.
Our approach to provisioning that we introduced during 2020 is to proactively capture the future cost of default in the loan portfolio and properly reflect the forward-looking economic impact of COVID-19. Loan loss provision, therefore, include overlays as well as specific provision and regulatory headwinds. Please remember that just like the macro assumption on which they are based, one should always look at cost of risk for full-year 2020 and full-year 2021 together. LLPs are a lagging indicator of GDP, and a sharper drop in full-year 2020 should lead to a stronger rebound in full-year 2021. Looking at the two years together also makes sense given the extension of the moratoria, especially in Italy. Our cost of risk in full-year 2020 stood at 105 basis points, at the lower end of our guidance range of 100-120 basis points.
Within this, 47 basis points were accounted for by specific LLPs, 46 basis points by overlays LLPs, and the remaining 12 basis points by regulatory headwinds. We experienced a significant quarter-on-quarter increase in LLPs in fourth quarter 2020, driven by a number of factors. As well as the usual seasonality, these include the anticipation of future impacts of lockdown through increased overlays, proactive classification, and regulatory headwinds. The latter are mainly connected to the New Definition of Default, whose first time introduction resulted in LLPs of EUR 0.5 billion. Full-year 2021 stated cost of risk is expected to be close to 70 basis points, with the underlying cost of risk close to 60 basis points. Let's turn to the balance sheet of slide 19. In the fourth quarter, the gross NPE ratio for the group, excluding non-core, increased to 3.8%.
This is due to an increase in UTPs, mainly resulting from proactive classification, partially offset by disposal of bad loans. Our underlying asset quality remains sound, with no material impact from COVID-19 yet. The coverage ratio was down 0.3 % points quarter-on-quarter due to a mix effect. There were relatively more UTPs, which have a lower coverage ratio than bad loans, and within UTPs, there were more secure files benefiting from government guarantees, and as a result, lower coverage ratios. Using the EBA's definition, the group NPE ratio excluding non-core at 2.6% continues to be better than the average of other European banks. Let's turn to slide 20. We continue to focus on the non-core rundown, and the process remains well on track. As a result, gross NPEs were down EUR 2.2 billion in the quarter to EUR 3.7 billion.
This was materially better than our target, which had already improved in first quarter 2020. Given the current economic environment, this is a very strong performance. Disposal continued to be a key lever in our de-risking. For the full-year, we completed EUR 3.4 billion of disposal within the non-core, while for the group as a whole, we executed EUR 5.6 billion of disposal, of which EUR 5 billion were in Italy. This is proof of our ability to execute deals in all conditions, with the bank benefiting from the considerable skills and expertise it has developed in this area. The financial impact of non-core on group performance for full-year 2021 is minimal, and the net economic risk embedded in a non-core rundown remains close to zero. This CMD 2019 profit and loss guidance is confirmed, and the overall non-core portfolio is provision to sell.
We confirm to the rundown of the non-core in 2021. Let's turn to slide 21. Our pro forma fully loaded CET1 ratio sit at 605 basis point over our MDA level, an increase in the buffer of 67 basis point over the quarter. To put our MDA buffer into context, it matches our current market cap. The increase in our MDA buffer over the quarter is a function of both a higher CET1 and lower risk-weighted assets. Points to note. First, other items includes the benefit to the numerator of the CET1 ratio from the revised regulatory treatment of software. This is now only partially deducted from CET1 capital, assuming three years of useful life and added to risk-weighted asset. The total net benefit is 22 basis points.
Second, the decrease in risk-weighted asset was mainly driven by lower volumes across all business units, as well as the increase in guaranteed loans in Commercial Banking Italy. Regulatory dynamics within a risk-weighted asset provided a very small tailwind in the quarter, with negligible effects from PD rating migration. See the annex of page 55 for more details. Third, total regulatory headwinds in the quarter 2020. If we combine the impact on both the numerator and denominator of the CET1 ratio was +25 basis points. This is better than our November guidance, thanks to a higher than expected benefit from software and a smaller than expected impact from PD rating migration. Fourth, the implementation of the New Definition of Default reduced our CET1 ratio by 15 basis points. This is included in non-operating items.
Finally, please remember that the goodwill impairment we took this quarter has zero impact on our CET1 ratio. Looking forward, regulatory headwinds are confirmed at less than 1.4 % points in full-year 2021. This includes TRIM and PD rating migration. Please remember that rating migration will revert over the time as GDP recover through the cycle. Our MDA buffer in full-year 2021 is confirmed to be well above 300 basis points, which is above our target range of 200-250 basis points. I will update you on our capital distribution plans at the end of the presentation. Let's turn to slide 22. In line with the strong increase in our CET1 MDA buffer, our TLAC MDA buffer increased to 737 basis points. The 2020 TLAC funding plan has been completed. We have pre-funded around EUR 2 billion of subordinated TLAC funding needs for 2021.
Despite the tough environment, we executed at EUR 2 billion dual tranches, senior preferred in January at very attractive spreads. Let's turn to slide 23. Finally, a quick look at our tangible equity, which stands at EUR 50.5 billion, slightly lower quarter-on-quarter, mainly due to non-operating items. Let's turn to slide 25. Thanks to our strong balance sheet and the commitment of our team members, we are well-placed to keep supporting our clients, whatever the environment. We run and manage the bank in a conservative and disciplined way, and prepare for all eventualities. As always, the health and safety of our employees and customer comes first. Assuming a progressive economic recovery over the year, the pace of which will be determined by the rate at which restrictions ease, and subject to the interest rate stabilizing, full-year 2021 revenues and costs will be in line with previous guidance.
Our full-year 2021 underlying cost of risk guidance is expected to be close to 60 basis points, equivalent to Loan Loss Provision of EUR 2.9 billion. The overlay provision we took in full-year 2020 underpin the credibility of our guidance, as some of these overlay provision will be used in full-year 2021, when higher defaults are expected to materialize. Indeed, our recent asset quality experience, including moratoria expiration, suggests that the outcome for the cost of risk may be better than current expectations. Our underlying net profit for full-year 2021 is expected to be above EUR 3 billion. With a strong balance sheet, we can also resume distributing capital to shareholders. Our capital distribution policy is confirmed, with an ordinary distribution of 50% of underlying net profit, comprising cash dividends and share buybacks.
As an exception in 2021, in order to comply with the ECB's recommendation, our ordinary distribution will be kept at the maximum allowed, which is EUR 447 million. This distribution will occur shortly after the AGM. In addition, at the AGM in April, we will submit a resolution for an extraordinary capital distribution of EUR 652 million, fully in the form of share buybacks to be executed in the fourth quarter, subject to supervisory approval and provided that ECB will repeal its recommendation on distributions. Combining these ordinary and extraordinary distributions equates to a total amount to shareholders in 2021 of EUR 1.1 billion, made up of EUR 0.8 billion of shares buybacks and EUR 0.3 billion of cash dividends. Our long-term CET1 MDA buffer targets remain at 200 to 250 basis points. Before moving to Q&A, I would now like to hand the floor back to Jean-Pierre.
As it is my last analyst call as CEO of UniCredit, it is time for me to say goodbye. A few thank you. I would like to start by thanking the analyst and investor community for the interest you have shown in the bank and the many engaging and robust discussions we have had over the years. I would like to thank the senior management team for their dedication, hard work, and wise counsel throughout my time as CEO. Their leadership and tireless efforts shaping and implementing our strategic plans have created the solid foundations that the bank enjoys today and have allowed the bank to navigate 2020 so effectively.
Most important of all, I would like to extend my sincere thanks and deep gratitude to all UniCredit team members for their continued commitment, resilience, and hard work throughout my time at the bank. Together, they have allowed UniCredit to prosper and do the right thing for all our stakeholders. I would like also to warmly welcome my successor, Andrea Orcel, who will join the bank after the AGM in April. Andrea brings a wealth of experience to the bank and an impressive track record in international finance. He's well-placed to take UniCredit on the next leg of its journey. Stay safe, thank you, and goodbye.
Jean-Pierre, I would like to thank you on behalf of the senior management team, as well as all our colleagues throughout the bank, for the outstanding contribution, hard work, vision, and leadership you have shown during your five years as CEO. Throughout this time, you have shown the utmost professionalism, commitment, and dedication to the bank, for which we are all very grateful. We wish you well in your retirement, although I suspect that there will be no such thing. We will, however, let Jean-Pierre retire from the next part.
Before the rest of the team and myself take your question, I would like to confirm that the board of directors and Jean-Pierre have reached an agreement for an early exit in light of the designation of the new CEO. Consequently, the board has appointed Ranieri de Marchis as Interim General Manager until Andrea Orcel's formal appointment at the AGM. Now, I will hand over to Jörg Pietzner, our Head of Group Investor Relations for the Q&A session.
Hello, everyone. If you would be please so kind as to limit your questions to a maximum of two each. I'm sure you will have lots of questions about Andrea Orcel's appointment and the bank strategy, but it would be premature to answer these until he joins the bank after the AGM in April. Many thanks, open for questions.
Thank you. We will now begin the question-and-answer session. The first question is from Alberto Cordara with Bank of America. Please go ahead.
Many thanks for taking my call. Congratulations for the great job to UniCredit . I am sure I speak also on behalf of any of my other colleagues in the analyst community. Fantastic job. The capital and the MREL position, they speak for themselves, is a completely different bank, a very solid bank. Getting back to business. My first question is, if I read your press release, you say that full-year revenues and costs for 2021 are in line with previous guidance. Revenues should still be around EUR 17.7 billion, if I remember correctly, and costs around EUR 10 billion. Based on the evidence for the quarter, it seems to me that your previous NII targets of EUR 9.5 billion is difficult to achieve.
Can you provide us with a more detailed breakdown of revenue targets for 2021, and why costs shouldn't be doing better than your EUR 10 billion guidance? How much you can flex cost to adapt to potentially lower revenues. My second question is, you propose a capital distribution of EUR 1.1 billion. That is surprisingly high, is 85% of the adjusted earnings of EUR 1.3 billion. Shall we take it that also in the future, for instance, next year, when you expect to achieve EUR 3 billion of adjusted earnings, we may see such high payouts? Thank you.
Thank you very much, Alberto. On the first question, where you said the revenues and cost guidance is in line with previous guidance, you're correct. The previous guidance is EUR 17.7 for the revenues and is FY 2020 costs in line with FY 2019, so just below EUR 10 billion. I'll hand over that question to Wouter Devriendt, our Head of Finance and Control. On the capital distribution, it will be Stefano Porro answering afterwards.
Okay. Thank you, Jörg. Very quickly, on the results of this year, quarter-on-quarter, as Stefano explained, the NII was down 2.3% quarter-on-quarter. Fees were up 2.5% quarter-on-quarter. Your question is about guidance going forward, let me highlight again the dynamics that we have seen in the last quarter. The context is very well known. Excess liquidity in the system and a downward pressure on key markets rates. What has been driving the quarterly results on the NII side was a clearly weaker demand on the credit side with an impact of EUR 47 million. That has to be seen in the context of the excess liquidity that we see in the market. That results in a weaker demand, especially driven by the corporate side. That is a reverse trend of what we have seen earlier this year.
When we look back at the beginning of the first wave, the COVID cycle, corporates were filling basically their revolving credit facilities. At the end of the first wave, what we have seen is that they refinanced that liquidity either in the capital markets or gave back that excess liquidity to the banks. That is part of what we have seen in Q3, but also in Q4, lower credit demand. There's another element in all of that, is also our prudent credit underwriting in the current cycle. It has been a very deliberate decision of UniCredit at the beginning of this crisis that we would tighten our risk appetite. That is also something that can be seen in the current results.
A second component explaining the lower NII in the last quarter was the lower rates. We have seen lower rates continued on the EURIBOR, but also on a couple of other key benchmark rates in other markets where we operate. All in all, the drop in rates was six basis points. If you apply that just to our overall loan book of a little more than EUR 390 billion, that translates pretty much in the EUR 54 million of drop that we have seen also on NII. Loan volumes, lower rates, have been partially offset, as also explained by Stefano, by beneficial TLTRO III, by a benefit that we have seen on lower term funding costs, and also by repricing of deposits, on which we have been actually particularly effective, especially in Central Eastern Europe.
Where does this bring us going forward? We have making a deliberate decision to guide only on total revenues for 2021. That is in line, as you also mentioned, with previous guidance. Given the COVID-19 environment, we expect that the revenue mix in itself might slightly change throughout the year. That's why we focus on the overall revenue stream instead of going more granularly into fees, into NII, or into trading. All I could say on NII is, going forward, what we see in the first quarter of this year is a continuation of certain headwinds that we have observed in Q3 and also in Q4.
A further weakening of the EURIBOR, a weaker demand of the credit, and also an ongoing growth of guaranteed loans in Italy. However, what we expect is a recovery in GDP, a growing economic activity as we proceed in the year, hopefully as of Q2. As the pace of restriction resulting from the COVID crisis eases, we hope that we will see more economic activity. That economic activity, that upswing, that should give a boost to credit demand. That should also result in a normalization of our credit risk appetite.
We also expect that a economic upswing will result in more deposits that will get spent or either invested as well. We will also obviously continue to manage more actively the negative rates, the impacts that that has on our deposits. That is as much as I can say in terms of guidance on NII. Obviously, when it comes to fees, as I said, strong quarter of the year, up 2.5%. As we will see economic recovery, we expect a further continuation of growing fees that have been particularly strong on the investment side in the fourth quarter, and for which we have seen a ongoing, very favorable trend in the first month of this year.
Thank you very much. Maybe Stefano on capital.
Yeah. Before moving to capital, Alberto, you ask about cost. Our strict discipline in relation to cost is maintained, meaning we will focus on whichever type of action that can allow us to benefit on the cost side. Having said that, as I was highlighting before, we are better than 2019 this year due to the variable compensation part that will be normalizing during 2021. We have also to bear in mind the depreciation effect of the IT investment that we will do in order to keep on improving on the digitalization. We will also increase the IT investment in 2021. In relation to capital, the ordinary capital distribution policy will be 50% of the ordinary payout. It means that in 2021, when we will have underlying profit greater than EUR 3 billion, we will propose a capital distribution of 50% of this amount.
Thank you. Next question, please.
Very clear. Thanks.
The next question is from Britta Schmidt with Autonomous Research. Please go ahead.
Yeah, hi there. Thanks for taking my questions. Could you please comment a little bit on the volume growth outlook that you plan for 2021, which segments do you intend to grow in? What sort of risk appetite does that reflect in terms of expected loss on your business? Also what sort of RWA growth could come with that? The second question will be on the Stage two loans. Can you expand in a little bit more detail what you have reclassified that was a very significant increase quarter on quarter? Also what out of this you would expect to move into Stage three assets over the next one to two years? Thank you.
Okay. Well, thank you, Britta. Maybe quickly on the volume outlook before I hand over the Stage two question or the staging question to Stefano. As you know, we don't give volume targets to the business because we have a very strict risk discipline. We don't do volume lending, we don't do carry trades, so there are no volume targets as such. What I think is fair to say is that obviously with our GDP assumptions, which see a rebound in 2021 across the geographies where we operate, that we expect a rebound in loan as a lagging indicator to that GDP growth. But we don't give explicit targets to the business. On the staging, to Stefano.
Yeah, before moving to the staging, as highlighted by Jörg, take in consideration the link on the volume dynamic to the GDP rebound, we are expecting in relative terms to have higher lending growth in CEE and Germany. Overall, we are expecting for the group an increase of the lending growth in all the division of the group. The two division we're expecting a higher in relative terms, also connected to the development of the economy are CEE and Commercial Banking Germany. In relation to the loan stages, as a matter of fact, you have all the details at page 53 on the market presentation. Commenting a little bit about that. We have moved around EUR 40 billion to Stage two loans.
If you look fourth quarter 2019 in comparison for quarter 2020. As a matter of fact, the overall percentage of Stage two loans, in relation to the total amount of loans, is around 18%. Just to give you the detail about Italy, the percentage in Italy is 15%. Out of the total amount of loans that we have in Italy, 15% are in Stage two loans. If you look to the coverage, in Italy, the coverage is 5%.
To put this into perspective, the amount of moratoria loans that we have in Stage two is near 68%. This is also explaining to you the amount of overlay provision that we had in 2020, because a portion of the 46 basis points I was highlighting to you before are deriving from this movement. The movement to Stage two are deriving either from the movement of the PD% of the obligor or, more specifically, by specific analysis that we did on the most impacted sector by COVID-19.
Thank you. Next question, please.
The next question is from Adrian Siew with Credit Suisse. Please go ahead.
Hi there. Thank you very much for taking my questions. I have a follow-up question on capital and one on fee income. On capital, you now have an MDA buffer, which puts you at the very top of the European banks peer. Still, you're proposing a extraordinary return, which is still below 100% of your underlying income. Given the combination of loan growth and capital generation expected into 2021, you remain on track to build capital going forward.
Should we see this capital currently in the MDA buffer as trapped, or is this something that you are trying to move towards the 200-250 basis points range? On the fee income, you've mentioned the upfront component of investment fees was at the highest level in three years. Is there any way to quantify them for us, as well as maybe give us an insight into the quantum of the performance fees to get an idea of the underlying trends in Q4? Thank you.
Thank you, Adrian, for that. The fee one, including any potential performance fees that are in there, will be answered by Wouter. On the capital one, I will hand it over to Stefano in a second. The only thing I think that is fair to remind everyone of is that we will have at the AGM in the middle of April, we will have a new CEO, a new chairman, and a new board, which will obviously consequently sit down and potentially review our strategy. I think at the very forward-looking component of your question, that I think would need a little bit of patience. Definitely on 2021, Stefano can answer on the capital. Maybe Stefano first on the capital and then Wouter on the fees.
Thank you, Jörg. As I was highlighting before, our medium to long-term CET1 MDA target is confirmed, at 200 and 250. In 2021, in relation to evolution of the capital, we have fundamentally three macro components. The first one is the underlying profit net of the dividend distributions policy that I was highlighting before. The second one is regulatory headwinds dynamic that is below 140 basis point of capital. The third one is the business volumes, meaning the risk-weighted asset connected with the business volume increase that we are expecting during 2021. As a concept of that, we are expecting also at the end of 2021 to remain with a MDA buffer well above 300 basis point. Capital allocation is a key of our strategy. As highlighted by Jörg, after the AGM, the CEO, together with the board, will review the strategy, including the asset allocation component of that.
Maybe Wouter very briefly on performance fees that you mentioned, and then I'll comment on the upfront fees you asked.
Yes, I can be very short on the performance fees. They actually don't play a material impact for us. They're single digits. Jörg, I can give that back to you for the other part of that question.
Yeah, that was quick. Thank you. As regards the upfront fees, they are roughly a third of the investment fees. Next question.
Thank you very much.
Thank you. Next question, please.
The next question is from Andrea Vercellone with Exane. Please go ahead.
Good morning. Two questions, one on NII, the other one on the profit guidance for 2021. On profit guidance, EUR 3 billion underlying net income, I just want to know if that number includes any DTA write-up, and if so, what amount you have included. On NII, can you disclose the amount of deposits you put back at the ECB in excess of tiering, both as of December and as of September? Also, I'm a little bit surprised that the contribution from the replicating portfolio in 2020 was basically the same number as in 2019, despite the fact that old swaps keep rolling off. I'd like to know if you can give us an explanation of why is that, what are the moving parts, and what headwind, if any, do you expect from this component in 2021? Thank you.
Thank you, Andrea. I'll hand both of these questions over to Stefano. I'll just point out the small part where you already gave a little bit of the answer yourself. Obviously, the replicating portfolio replicates the non-maturity deposit. As deposits go up, obviously also those volumes go up. On the other questions, over to Stefano.
Thank you, Jörg. In relation, I will start from the tiering. We have around EUR 24 billion of deposit in ECB considered for the tiering. The estimated impact from NII perspective is around EUR 100 million contribution to the net interest income. The amount has increased in December in comparison with September following the increase of the deposit, because it's a function of the amount of deposit. In relation to the replicating, we have a net contribution of the replicating portfolio at group level of around EUR 1.4 billion. We were stable 2020 in comparison to 2021 because it's the net benefit of the replicating strategy, it's including the dynamic of the fixed component, also dynamic of the floating leg of the replicating.
As you have highlighted, during 2021, due to the rolling of some of the producer executed hedge, we are expected a slightly less contribution from the replicating portfolio. In relation to the 2021 underlying net profit, this is based on a tax rate of around 20%. We are including amount of DTA write-up of around EUR 100 million. The final amount of DTAs write-up, as you know, will be dependent, however, from the DTA test that will run in the second part of 2021, and will also dependent on the future profitability of the bank going forward.
Thank you.
Sorry, my question on deposits at the ECB was not what is the amount under tiering, but what is the excess deposited over tiering. Could you disclose that number?
Yeah, you can have that also in the balance sheet. The excess that we have over the tiering has increased during the year. It has reached more than EUR 100 billion at year-end.
Thank you.
You're welcome.
Thank you, Andrea. Next question, please.
The next question is from Domenico Santoro with HSBC. Please go ahead.
Hi. Good morning. Thank you for the presentation. All the best, of course, to Mr. Mustier. Just to follow up, please, one on the NII. My understanding from the call is that you up-fronted some contribution from the TLTRO III. I'm just wondering, because of the new, of course, conditions, just wonder what should be the run rate from now on, and whether we see a further decline in the first quarter of this year. The second question is on your tangible book. You are deliberately, of course, reducing the run book.
That's my understanding. Your quarter one is improving. Profitability was not great this year, but your tangible book at page 23, it keeps falling. If I'm not wrong, big hedging policy effects in place like the other European banks. You for sure have some benefits from FX Reserve. I'm just wondering whether there is a structure impact in terms of whatever you might want to comment that we should account, given the reduction in tangible book. Thank you very much.
Thank you, Domenico. I think both of them will be answered by Stefano, both on the let's say one-off impacts on TLTRO III increased terms in the fourth quarter and the implications for the run rate, as well as the moving pieces in the tangible equity.
Yeah. As we highlighted before, the contribution in the quarter was showing an improvement of 37. If your question is related to the run contribution, is around EUR 150 million per year, that would remain stable over time. We will not have a further pickup during 2021, considering the current take that we have in relation to TLTRO III. In relation to the tangible book, as a matter of fact, the dynamic quarter on quarter is fundamentally connected to the impact deriving from non-operating items like [inaudible], that is clearly a one-off, and the contribution of the Additional Tier 1 coupon and CASHES for around EUR 200 million.
Otherwise, the dynamic of the tangible equity would have been slightly up during the quarter. In relation to the hedging of the FX reserves, currently we are not hedging our FX reserve exposure. Having said that, the sensitivity deriving from the FX currency due to the participation has reduced, taking also into consideration the sale of Yapi that we had during 2020.
Thank you. Just to add, Domenico, on the net benefit from the TLTRO III, this is exactly in line with what we said before. Before they improved the terms, you remember we had a net benefit of EUR 75 million. Now they extended the bonus payment, if you will, from one year to two, so it doubles to the EUR 150 that Stefano mentioned. Next question, please.
The next question is from Antonio Reale with Morgan Stanley. Please go ahead.
Hi, good morning. Thank you for the presentation. I would also like to add my thanks to Jean-Pierre for the tremendous work delivered. I've got two questions, please. One on capital distribution, and the other one on government measures. On capital distribution, we've seen, in this reporting season, banks be particularly confident announcing general capital plan with their Q4 results. My question is, do you see any risks of further delays or rather risks of further limitations? It doesn't seem to be the sort of gradual approach of returning capital that you, Jean-Pierre, and the regulator have been talking about.
I'd like to hear your thoughts there. My second question is on the government measures. As I said, if you could talk about this a little bit more, how demand for such schemes are coming through for both government guaranteed loans and moratoria, and how are these performing so far? If you could put this into context, versus your expected, I think it was 6% default rate for the moratoria loans, please. Thank you.
Yes. Thank you, Antonio. The government guarantees and moratoria will be answered by TJ. Then on the capital distribution, again, just bear in mind, the long-term outlook on excess capital, I think, is fair to wait for our new CEO, but for 2021, for sure. The short-term risks, if you will, from ECB restraints, not restraints, will be answered by Stefano.
Yeah. Thanks. Your point was in relation to potential, let's say, headwinds in relation to the capital distribution. You have seen our capital and the MDA buffer that we have. Clearly, we comply with ECB. Having said that, we do think that the extraordinary capital distribution is an amount that makes us confident in relation to also the overall regulatory assessment. The overall regulatory assessment will not be only on us, will be on the system. This is why the capital distribution, the extraordinary one, is subject to also ECB repealing the overall distribution recommendation that currently are in place.
On that one, I think, Antonio, you should take comfort from the fact that they used the wording, unless there's a material adverse change. I think if you read the press release from the ECB from December, that should give the observant reader some comfort as to their security. TJ, on moratoria?
Thank you, Jörg. Antonio, on the moratoria, clearly just to point out, in Germany, all the moratoria have expired. We've observed very little sign of deterioration. In Austria, also, a lot have been expired. CEE, two-third have expired, and they are clearly the expiration of what we have seen is better than what we have projected. The remaining of the CEE third will happen in the course of first half of this year. In Italy, about 20% have expired. Clearly, the moratoria has been extended to June. We think they will end, we cannot rule out further extension.
In there, clearly in Italy, today, you've seen that in the annex, that we have put in on page, I think 14, in the annex side, that of the so-called EUR 22 billion of original moratoria, the expired is about EUR 12 billion. We continue to see that moratoria is expiring sort of very quickly. In terms of the guaranteed side, we will be closer to the EUR 20 billion. I think a large part will be taken in Italy. I think we've exceeded our so-called target of EUR 15 billion. The granted amount so far is EUR 15.6.
On this, Antonio, a comment in relation to the different demand that we are receiving in different countries. In countries like Germany and Austria, as a matter of fact, we have not any more demand for state-guaranteed loans, as highlighted by TJ, still we have demand in Italy, even if at a lower growth pace in comparison with the last quarter.
Thank you. Next question, please.
The next question is from Delphine Lee with JP Morgan. Please go ahead.
Hi, thank you for taking my questions. I would like to just come back on the moratoria, and just wanted to understand a bit, what kind of default rate you expect on this, and when do you expect NPEs to peak and, I think in the past you had given us a bit of some default rate assumptions that you have for 2021, 2023, if you could just update us on this. Just maybe a very quick one actually on net profit guidance, which is now above EUR 3 billion. Is there any changes to systemic taxes or any other non-operating items that we should be aware of?
Thank you, Delphine. The one on the moratoria default rates expected development will be answered by TJ in a second, and the guidance will be taken by Stefano. Maybe TJ first.
Yep. Thank you, Jörg. Hi, Delphine. Clearly on the moratoria, as I have said earlier, Germany very low, that we have seen. The default rate is more like the going to NPE, more like 2.6%. Austria, if we strip out what has gone to, is sort of similar amount. In Italy, it is far too early, very little default, but again, the bulk of the moratoria will be expiring in the middle of this year. CEE, if we strip out what is really in NPE, is closer to around the 5% type numbers. This is much lower than our projections.
Thank you, TJ. We'll actually have the underlying net profit guidance answered by Wouter.
Yes, again, very short. On systemic charges was your question. We confirmed our guidance for systemic charges around EUR 950 million for 2021.
Okay. Thank you.
Otherwise, I would just argue that greater than three, also three and a half is greater than three. Next question, please.
Okay, thank you.
The next question is from Benjie Creelan-Sandford with Jefferies. Please go ahead.
Yes, good morning. Couple of quick follow-ups from me, please. First of all, just on asset quality and NPLs, you've pointed to NPLs rising in 2021. I just wondered whether you could be any more specific on the extent. On the Stage two loans, you've already touched on. Can you give any detail on what proportion of those Stage two loans relate to either loans under moratoria, or also with customers associated with guaranteed loans? My second quick question was just whether you can disclose the level of unrealized gains on the bond portfolio at the end of the year. Perhaps how we should think about that in the context of the revenue guidance for 2021, and whether you'd be willing to, I guess, crystallize some of those gains to support grading through 2021 if line items like NII remain under pressure in the short term. Thank you.
Thank you so much. We'll hand over the Stage two percentage, the percentage of loans in Stage two and the moratorium guarantees to TJ in a second, and the unrealized gains from the bond portfolio to Stefano. The one thing to be aware just on the bond portfolio is, as you know, we've had a strategy over the last couple of quarters to shift more of our bond portfolio into the held-to-collect bucket, and there's only a very limited amount we can sell. Of course, there's still some numbers in fair value through OCI, and I'll hand that to Stefano. Maybe TJ first on the Stage two loans and how much of that is moratoria and guaranteed.
On the Stage two loan on moratoria, in Italy, we have proactively, as mentioned by Stefano earlier. It's one of the overlay action to practically capture the future impact. We classified quite a substantial amount between Q3 and Q4, something in the order of almost over EUR 15 billion. The Stage two within the moratoria side is around 70% of the outstanding today. A large chunk. We feel very comfortable that this so-called proactive classification will enable us to anticipate future impact in this year, in 2021.
Thank you.
In relation to fair value reserve on financial asset at year-end, we have near EUR 800 positive gain. This is split in around EUR 1 billion that is positive in relation to sovereign. Out of this, around EUR 400 million is the portion of the Italian sovereign, as already alerted by Jörg. We have a portfolio around EUR 53 billion of Italian governments. More or less half of this is held to collect.
Thank you. Next question, please.
The next question is from Patrick Lee with Santander. Please go ahead.
Hi, good morning, everyone. Thanks for taking my question. I have firstly a general one on the Net Interest Income and business volume, and then a second one on asset quality. Firstly on the Net Interest Income weakness, which part of it was driven by lower volume, which you alluded to in the presentation is due to risk appetite of the group being more cautious. I think in the past you mentioned that you would avoid consumer finance. If I look at your disclosure on page 38, it also shows that quite a sizable loan contraction in CIB and in geographies outside Italy. I just wanted to ask you which are the segments of your loan book that you're most wary of at this point in time?
Secondly, on asset quality, I think the provisioning charge was clearly at the lower end of guidance this year for fourth quarter. Within that, in your detailed disclosure, there's a big jump in the specific charge from 36 basis points to 89 basis points. You indicated that there was some proactive recognition of Unlikely to Pay driving this. Do you think you can give us some qualitative comments on the underlying actual charge, like if you had not done this extra cautious bit, would specific charge have fallen in the fourth quarter? Also, how does the 89 basis points specifically relate to the guidance for 70 basis points next year? I mean, is it fair to assume that by 2021, given the overlay taken, the majority of this 70 basis point outside regulatory would be mainly specific, or you're assuming some sort of release from the preempted provisioning already? Thanks.
Thank you so much, Patrick. I'll hand over the asset quality to TJ in a second, especially sort of cost of risk and split in 2021, and then on the NII and the risk appetite, sort of consumer loans volumes to Stefano. Maybe TJ can start with the asset quality.
Yep. Thank you, Jörg. Hi, Patrick. As stated in our guidance, we are in the lower end. The specific cost of risk, one has to look at for the whole year, the context of 47 basis points. Clearly in Q4, we have seen clearly for some countries, particularly the CEE, where two-thirds of the moratoria have expired, we proactively classify via the UTP test some of the files, just to ensure that we do not have the cliff effect.
If you then project that with the Stage two that we have done decisively, as Stefano pointed out, we've done over EUR 40 billion from last year in staging, that it would put us well in terms of our guidance for the lower end in terms of the cost of risk. Clearly, when we have seen a lot of the moratoria have expired, some of the asset quality that we've seen, as mentioned in one of the questions earlier, is much better than what we have expected. We feel confident of our guidance towards the lower end for this year.
Thank you. Stefano?
In relation to the volume dynamics, the strict underwriting discipline is applied fundamentally to all the asset class. If we look more to the retail part, yes, the most impacted one is consumer financing, especially on the new business. Partial on the stock, more on the new business, and more in Italy and CEE. Having said that, as highlighted before, we will normalize our risk appetite throughout the year.
As a consequence of that, we are expecting also to have an increase of the new business in relation to some asset classes like consumer financing that has been penalized, if you look from this perspective during 2020. In relation to the dynamic quarter-on-quarter, as highlighted before, when you look to CIB in Germany and Austria, the dynamic was also impacted by prepayment by corporates. Was not really connected to an underwriting discipline point, but more with the cash situation of the corporates.
Thank you. Next question, please.
The next question is from Ignacio Cerezo with UBS. Please go ahead.
Yeah. Hi, good morning. First of all, thank you and good luck to CEO Mustier. Couple of questions from me. First one is on NII. We've seen term funding as one of the few tailwinds, if you want, actually, throughout 2020. If you can give us some information around activities, and if you expect that tailwind to continue. The second question is on cost of risk. It's a little bit complicated, probably, to answer, but then what is your best approximation to a cost of risk beyond 2021? Should we expect additional declines? You used to have cost of risk guidance in the region of 40 to 45 basis points. I know it's early, actually, but if you can share your thoughts on that front. Thank you.
Thanks, Ignacio. On the funding, Stefano will answer that. Then on the cost of risk outlook, I'll give it to TJ, but just be mindful, of course, he'll give you his best answer, but then we gave guidance for 2021, I think, for a reason. Again, we'll have an AGM in the middle of April, so long-term questions, of course, are a bit tricky. I'm sure TJ will handle that one just fine.
Thank you, Jörg. Ignacio, hi. Clearly, as what Jörg say, beyond sort of 2021, we will update during the CMD when we do that. If you look through the so called 2021, a lot of action has been taken, in terms of either via overlay proactive classification. We think, hopefully, by end of 2022, when the world start to normalize, that things should be normalizing. It's too early to mention any cost of risk guidance for beyond 2021.
Yeah, maybe the other one. Stefano, before he answers that, just quickly, Ignacio, as you correctly said, in the old Capital Markets Day, the last year of the plan had around 40 basis points, both on expected loss underlying, adjusted for reg headwinds and cost of risk at the time. It made sense at the time. It's up for you. As TJ said, we'll have a Capital Markets Day after the strategic review. Stefano, on term funding.
Yeah. Thank you, Jörg. The dynamic of the term funding contribution to NII is dependent on two elements. One is volumes, the second one is rates. In relation to rates, there will be a positive dynamic, both in consideration to the arrival level, but also the spread level that has tightened over time. We're expecting, from that perspective, to have new issuances at an average lower spread than the issuance that will mature during 2021.
In relation to the volumes, as you know, we're really strongly positioned. The amount of the funding plan related to TLAC MREL needs is between 9.5 and 12. Having said that, the execution will be also dependent on the overall evolution of the risk-weighted asset over the years. If the risk-weighted asset evolution will be lower than expected, we will adjust the funding plan accordingly, with a potential benefit on TNII.
Thank you. Next question, please.
The next question is from Alexei Lougovtsov with Bank of America. Please go ahead.
Hello. Thank you very much for the call, and thank you for proposing large capital distribution. I wanted to ask, in the light of big distribution to equity, would you expect to exercise your right to pay coupons on CASHES instrument after May 2021?
Thank you so much. This one is for Stefano, who was here even when we launched the CASHES.
Yes. As we did during 2020, also for 2021, the expectation is to pay all the coupon of Additional Tier 1 and the usufruct on the CASHES. The answer is yes.
Thank you. Next question.
Okay. Thank you very much.
You're welcome.
The next question is from Hugo Cruz with KBW. Please go ahead.
Hi. Thank you. Just a quick question on the risk appetite for NII that should normalize. I'm just trying to understand the shape of that normalization. Is it going to be gradual during the year, or are there going to be specific catalysts such as, for example, the new CEO being on board, or knowing the results of the ECB stress tests, or perhaps getting to the level of vaccination where we can be sure on the GDP growth forecast? If you could explain that to me, it'd be great. Thank you.
Well, hi, Hugo. Thank you very much for the question. I think what we've said as regards to the current situation, I think we've been restrictive in 2020, and we can expect a normalization. I think the heart of your question on sort of risk appetite on NII, I think is something that we need to ask a little bit of patience, because we'll have the AGM and then the new CEO Chairman and the board to review the strategy. Maybe TJ wants to add something on risk appetite.
Just to add to what Jörg mentioned. Clearly, when we look through one of the part that we will continue to follow is the risk discipline, the risk culture. As the economy start to open up, we can expect, clearly, the normalization to take place. At that point, we will look at a risk-based approach to our lending activities.
Thank you. I think it's fair to say that TJ has managed, over the last five years, to firmly ingrain the risk discipline in the organization, and that will bar any change in strategy. Of course, the details of that shape will ask for patience. Thank you. Next question.
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Well, in that case, we thank you very much for your attention, and hope to see most of you at the analyst breakfast tomorrow morning, and then also during some roadshows later. Thank you so much. Take care, and stay safe.
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