Good morning, ladies and gentlemen. Today's conference call will be hosted by UniCredit's CEO, Mr. Jean Pierre Noussier and CFO, Mr. Stefano Porro. Today's conference call is being recorded.
At this time, I would like to hand the call over to Mr. Jean Pierre Muthier. Sir, you may begin.
Thank you very much, and good morning, and welcome to the analyst call for our Q4 2020 and full year 2020 results. With the 2nd wave of the COVID-nineteen 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 €1,300,000,000 This is an impressive performance given COVID-nineteen resulted in the worst downturn in the last 80 years And given the €5,000,000,000 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 outcome on both cost and the cost of risk. Our cost of risk for the full year at 105 basis points was towards the lower end of our guidance of 100 to 120 basis points. The figure also included 46 basis points of overlay provisions, equivalent to €2,200,000,000 You will remember that our aim was 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-nineteen. 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 form a CET1 ratio of 15.08 percent implying a pro form a MDA buffer of 605 basis points.
This is a record for the bank. Let's turn to slide 5. 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. The fortress balance sheet, a deeply embedded risk and cost structure and a focus on delivering sustainable results for the long term.
Over the last 5 years, the management team has worked earnestly to clean up and de risk the balance sheet. The gross NPE ratio for the group fell to 4.5% as of the Q4 2020, Reduction of over 11 percentage points since the end of 2015 or almost €57,000,000,000 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 Japan 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 Q4 2015.
Relative to our MDA, This represents a pro form a buffer of 605 basis points. As I have already said, a record level for the group. The deal risk balance sheet provides rock solid foundation for the bank going forward. Let's turn to slide 6. Our risk and cost culture are deeply embedded in the bank's DNA.
Strict risk discipline manifest itself in our focus on the best rated clients and the 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 Q1 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 €2,400,000,000 Since 2015, head by a near 20% reduction in FTEs and an almost 40% branch reduction over the same period. Our cost structure 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 the 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 7. Our culture and our values are fundamental part of how we run the bank.
Our commitment is and remains to do the right thing for all our stakeholder, 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 4th year running by the Top Employers Institute and upgraded by 2 ESG rating agencies, MSCI and CDP. Public recognition, however, is an outcome, not a target of UniCredit's sustainability commitments. There is a clear ESG roadmap aligned to the highest global standards of policies and principle. Our culture and values are embodied in our people.
For their commitment, professionalism and hard work, the bank successfully navigated the extraordinary events of 2020. I am very proud of how the old 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 well-being of all the bank shareholder. With a de risk 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, Stephane Oparo, who will take you through our Q4 2020 and full year 2020 results in more detail.
He will also host a Q and A later. Stefano, the floor is yours.
Thank you, Jean Pierre, and good morning, everyone. Let's turn to Slide 8. As already mentioned, our fully loaded pro form a 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 division as well as the increase in guaranteed loans in Commercial Banking Italy. Our very strong CET1 MBA 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 extraordinary distribution equal to a total amount of €1,100,000,000 MEDALA, €800,000,000 of shares buybacks and €300,000,000 of cash dividends. The buybacks are subject to AGM and supervisor approval.
Turning to asset quality. The reduction in gross A and Ps has continued with a net reduction of €1,500,000,000 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 today is proof of our strict underwriting discipline.
Nonetheless, we expect the gross NPE ratio to increase through full year 'twenty one as government support major runoff. We are prepared, adding proactively built up no loss provision in full year 'twenty 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 net profit and therefore, no impact on our capacity to return capital to shareholders.
Let's turn To the group P and L on Slide 10. Revenues stood at €17,100,000,000 in full year 'twenty, down 9% over the 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% Muthier, full year on full year, reflecting our strict term discipline and continued focus on further efficiency gains, which more than offset COVID-nineteen related expenses. I will comment on revenue and cost components in more detail in the following slides, I would like to make 3 specific comments on items below the net operating profit line. The systemic charges were in line with our guidance of around €195,000,000 for full year 2020, mainly influenced by additional contribution to the Singular Resolution Fund and deposit guarantee scheme. The loss on investment in full year 'twenty is mainly due to the release of the negative FX reserves related to YAPI transactions and small adjustments related to the non core rundown. These were partially offset by real estate disposals in Germany.
In full year 'twenty, 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 and to the effect of non operating items such as the losses arising from the disposal of the stakes in IAPI and integration costs. 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 net profit across the group in full year 'twenty, we can see that our diversified A business model underpinned a resilient performance at group level in this challenging year.
Both CE and Corporate Investment Banking divisions stand out with solid underlying full year 2020 return on allocated capitals 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 costincome ratio of 38.6%, an improvement of 0.2 percentage points full year on full year. CE is a resilient contributor to the group's profitability We have full year 2020 underlying net profit of €700,000,000 and will continue to be an important growth driver of the bank going forward. Muthier.
Commercial Banking Italy delivered a robust performance at the gross operating profit level despite the impact of COVID-nineteen on client Its result was, however, significantly impacted by elevated LLPs, mainly due to overlays and the new definition of default. This resulted in an underlying net profit of €8,000,000 in full year 'twenty. Let's turn to Slide 12. 'nineteen interest income was down 2.3% Muthier, quarter on quarter. The quarter was characterized by excess liquidity in the system as well as further downward pressure Muthier.
On key market rates, this impacted our net interest income in 4 ways: 2 negative to positive. 1st, weak demand for credit. Average loan volumes Fell quarter on quarter with most of the drop concentrated in CIB, CE and Commercial Banking Germany, where cash rich corporates continued to repay loans. 2nd, lower customer rates. For the reduction in Euribor and other key benchmark rates contributed to lower customer rates in all divisions bar 1.
Commercial Banking Italy also saw further growth in its guaranteed loan book. While such guaranteed loans are good business, Given they are low risk and capital consumption, they are written at lower rates than normal loans of an equivalent maturity. 3rd and positive, lower term funding costs where we benefit from lower market rates. Finally, announced theater of free terms. The extension by ECB last December of the favorable borrowing cost by 1 year double the net benefit we expect to receive.
Half of the 37 TLTRO free contribution included in this quarter is a catch up payment for Q3 'twenty to reflect the announced terms. Looking forward, Q4 'twenty one will likely see continued headwinds with abundant liquidity in the market, Euribor having weakened further, Demands for credit remaining weak given extended lockdowns and the expected incremental growth in guaranteed loans in Italy. Also remember that the 4 quarter 2020 catch up payment from TLTRO III will not be repeated. As we move into the remaining quarters of full year 'twenty one, 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 restriction is. An economic up Swinh will drive a recovery in the 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 both net interest income in the short term. To offset the continued pressure from negative rates, the bank, consistent with local regulations, Continuous to work connection 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 a normal year on year one to better capture the underlying dynamics. Fees were up 2.5% quarter on quarter, an encouraging performance given the 2nd wave of lockdown 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 2 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 Structural 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 'twenty 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 Q2 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 rich client shifting deposit into asset under management, subject to market remaining buoyant. While for financing and transactional fees, we expect client activity to pick up from Q2 'twenty one onwards with the pace determined by the rate at which the restriction is and GDP recovers. Let's turn to Slide 14. Trading income in full year 'twenty was €1,400,000,000 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 Q4 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 Muthier.
Equity and Commodities was impacted by less certificate business as client activity shifted towards Asset 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 on year, mainly thanks to treasury and financial rescheduling. As anticipating earlier in the year, trading income excluding the XWAY component Normalized in the 4th quarter, it was in line with our quarterly guidance. This remains around €350,000,000 on average, excluding XBA. The lower contribution from dividends, down 34 point 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 costs falling 1.2% full year on full year. Our strict discipline allowed us to more than offset COVID-nineteen related expenses incurred in the year. Full year 2020 total cost amounted to €9,800,000,000 slightly better than our guidance of flat costs related to full year 'nineteen. This was mainly thanks to lower HR costs linked to a reduction in variable compensation of more than €100,000,000 compared to last year and to lower than expected non HR costs into fewer external supplier related costs and lower travel expenses.
We experienced a higher than usual 4Q seasonality in non HR costs. These were 7.7% higher quarter on quarter due to a higher IT expenses and security costs, partially offset by lower credit recovery expenses. For full year 'twenty one, 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 TIM 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 4th quarter 'nineteen and for 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 for all looking economic impact of COVID-nineteen. Non loss provision, therefore, include overlays as well as Muthier, specific provision and regulatory headwinds. Please remember that just like the macro assumption on which they are based, one should always look at cash flow risk for full year 'twenty and full year 'twenty one together. LLPs are a lagging indicator of GDP, and a sharper drop in full year 'twenty should lead to a stronger rebound in full year 2021. Looking at the 2 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 to 120 basis points. Within this, 47 basis points were accounted for by specific LPs, 46 basis points by Overlays LLPs and the remaining 12 basis points by regulatory headwinds. We experienced A significant quarter on quarter increase in LPs in Q4 'twenty, driven by a number of factors. As well as the usual seasonality, these include the anticipation of future impacts of lockdown through increased overlays, Muthier. Proactive classification and regulatory headwinds.
The latter are mainly connected to the new definition of default, whose first time introduction resulted in LLPs of €500,000,000 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 on Slide 19. In the 4th quarter, the gross NPE ratio for the group, Mouffier. Including non core increased to 3.8%. This is was due an increase in UTPs, mainly resulting from Muthier.
Our underlying asset quality remains sound with no material impact from COVID-nineteen yet. The coverage ratio was down 0.3 percentage points quarter Muthier. On quarter due to a mix effect, there were relatively more UTPs which have a lower coverage ratio than bad loans. Muthier. And as a result, lower coverage ratios.
Using the EDA's definition, the group NPL ratio excluding noncore 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 €2,200,000,000 in the quarter to €3,700,000,000 This was materially better than our target, which had already improved in Q1 'twenty. Given the current economic environment, this is a very Strong performance.
Disposal continued to be a key lever in our derisking. For the full year, we completed €3,400,000,000 of Disposal within the non core, while for the group as a whole, we executed €5,600,000,000 of disposal, of which €5,000,000,000 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 'twenty one is minimal, and the net economic risk embedded in the non core rundown remains Close to 0. The CMD 2019 profit and loss guidance is confirmed and the overall non core portfolio is provisioned Musier.
We confirm the rundown of the non core in 2021. Let's turn to Slide 21. Our pro form a fully loaded CET1 ratio sit at 605 basis points over our NDA level, an increase in the buffer of 67 basis points over the quarter. To put our MDA buffer into context, it matches our current market cap. The increase in our NDA buffer over the quarter is a function of both a higher CET1 and lower risk weighted assets.
Points to note. 1st, 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 3 years of useful life and add debt to risk weighted asset, the total net benefit is 22 basis points. 2nd, 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. Muthier.
Regulatory dynamics within risk weighted assets provided a very small tailwind in the quarter with negligible effects from PD rating migration. See the annex of Page 55 for more details. 3rd, total regulatory headwinds in Q4 'twenty. If we combine the impact on both The numerator and denominator of the CE to 1 ratio was plus 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.
4th, 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 percentage points in full year 'twenty one. This includes TRIM and PD rating migration.
Please remember that rating migration will revert over the time as GDP recover through the cycle. Our NDA buffer in full year 'twenty one is confirmed to be well above 300 basis points, which is above our target range of 200 to 2 50 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 MVA buffer, our TLAC MVA buffer increased to 7 37 basis points.
The 2020 TLAC funding plan has been completed, And we have pre funded around €2,000,000,000 of subordinated TLAC funding needs for 2021. Muthier. Despite the tougher environment, we executed a 2,000,000,000 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 Muthier.
Stands at €50,500,000,000 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 in 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 restriction is And subject to the interest rate stabilizing, full year 'twenty one revenues and costs will be in line with previous guidance. Our full year 'twenty one underlying cost of risk guidance is expected to be close to 60 basis points, equivalent to loan loss provision of €2,900,000,000 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 Muthier, when higher defaults are expected to materialize. Indeed, our recent asset quality experience, including monetary expiration, suggests that the outcome for the cost of risk may be better than current expectations. Our underlying net profit for full year 'twenty one is expected to be above €3,000,000,000 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 Mouffier, euros447,000,000 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 €652,000,000 fully in the form of share buybacks to be executed in the 4th 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 €1,100,000,000 made up of €800,000,000 of shares buybacks and €300,000,000 of cash dividends. Our long term CET1 MBA buffer targets remained at 200 to 2 50 basis points. Before moving to Q and A, I would like to And
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 I will allow 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 Orchel, who joined the bank after the AGM in April. Andrea brings a wealth of experience to the bank and an impressive track record in international finance.
Is well placed to take UniCredit on the next leg of its journey. So stay safe. Thank you, And goodbye, arrivaderti and au revoir.
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 5 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 retard 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 Rainier De Marques as Interim General Manager until Andre O'Sell's formal appointment at the AGM. Now I will hand over to Georg Pitzer, our Head of Group Investor Relations, for the Q and A session.
Hello, everyone. If you would be please so kind as to limit your questions to a maximum of 2 each. Also, I'm sure you will have lots of questions about Andre Ocher's appointment and the bank's strategy, but it would be premature to answer these until he joins The bank after the AGM in April. Many thanks and open for questions.
Gustier. Thank you. We will now begin the question and answer session.
Gustier.
Sure, you are not on loudspeaker. The first question is from Alberto Cordara with Bank of America. Please go ahead.
Many thanks for taking my call Moustier. And congratulations for the great job to the credit. I'm sure I speak also on behalf of any of my other colleagues Musier. In the analyst community, fantastic job. The capital and the NPE position, they speak for themselves It's a completely different bank, a very solid bank.
Now getting back to business. My first question is, if I read your press release, Muthier. You say that full year revenues and cost for 2021 are in line with previous guidance. So revenues should still be around €17,700,000,000 if I remember correctly and cost around €10,000,000,000 However, based on the evidence of the quarter, it seems to me that your previous NII target of 9.5 It's difficult to achieve. So can you provide us with a more detailed breakdown of revenue targets for 2021?
Muthier. And why cost shouldn't be doing better than your €10,000,000,000 guidance? How much you can flex cost to adapt to potentially lower Muthier. And then my second question is, you propose a capital distribution of €1,100,000,000 That is surprisingly high is 85% of the adjusted earnings of €1,300,000,000 Shall we take you the thoughts in the future, for instance, next year, when you expect to achieve EUR 3,000,000,000 of adjusted earnings,
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 17.7% for the revenues. And Is FY 'twenty costs in line with FY 'nineteen, so just below €10,000,000,000 But I'll hand over that question To vote at Evrien, our Head of Finance and Control.
And then on the capital distribution, it will be Stefano Poiro answering afterwards. Okay.
Thank you, Jorg. 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. Now your question is about guidance going forward, but 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. And so what has been driving the quarterly results on the NII side Was a clearly weaker demand on the credit side with an impact of €47,000,000 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. And at the end of the first wave, what we have seen is that Muthier.
They refinanced debt liquidity either in the Capital Markets or gave back that excess liquidity to the banks. And that is part of what we have seen In Q3, but also in Q4, lower credit demand. There's an other element in all of that is also Our prudent credit underwriting in the current cycle. I mean, it has been a very deliberate decision of UniCredit at the beginning of this crisis That we would tighten our risk appetite. And 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. And we have seen lower rates continued on the Euribor, But also on a couple of other key benchmark rigs and other markets where we operate. And all in all, the drop in rates It was 6 basis points. So if you apply that just to our overall loan book of a little more than €390,000,000,000 that translates pretty much in the €54,000,000 Of drop that we have seen also on NII. Now loan volumes, Lower rates have been partially offset, as also explained by Stefano, by beneficial TLTRO3, 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.
Now where does this bring us going forward? We have making a deliberate decision to guide only on total revenues for 2021. And that is in line, as you also mentioned, with previous guidance. But given the COVID-nineteen environment, We expect that the revenue mix in itself might slightly change throughout the year, and that's why we focus on the overall revenue stream instead of going more granularly Muthier. Into fees, into NII or into trading.
All I could say on NII is Going forward, what we see in the Q1 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 lower demand a weakening 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. And as the pace of, restructuring resulting from the COVID crisis eases, We hope that we will see more economic activity. And that economic activity, that upswing, that should give a boost to credit demand. That should always also result in a normalization of our credit risk appetite.
We also expect that a Economic upstream will result in more deposits that will get spent or either invested as well. So we will also obviously continue to manage more actively the negative rates, the impacts that, that has On our deposits. But that is as much as I can say in terms of guidance on NII. And obviously, when it comes to fees, as I said, Strong quarter of the year, up 2.5%. And as we will see economic recovery, we expect a further continuation of growing fees, Fees that have been particularly strong on the investment side in the Q4 and for which we have seen a ongoing very favorable trend in the 1st month of this year.
Thank you very much. Then maybe Stefano on capital?
Yes. Before moving to capital, Alberto, you asked 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 'nineteen this year due to the variable compensation part that will be normalizing during 2021. And 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. So 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 €3,000,000,000 We will propose a capital distribution of 50% of this amount.
Thank you. Next question, please.
Gustier. The next question is from Britta Schmidt with Autonomous Research. Please go ahead.
Gustier. Yes. 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 Gustier. The loss on your business and also what sort of RWA growth could come with that? And the second question will be on the Stage 2 loans. Can you explain in a little bit more detail Gustier. What you have reclassified, there was a very significant increase quarter on quarter.
And also what out of this you would expect to move into Stage 3 assets over the next 1 to 2 years. Thank you.
Okay. Well, thank you, Britta. Maybe quickly on the volume outlook before I hand over the stage 2 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 Mouffier. Look, here it is. 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 Mouffier. [SPEAKER JEAN PIERRE ANDRE DE CHALENDAR:] GDP growth, but we don't give explicit targets to the business.
On the staging to Stefano?
Yes. Before moving to the staging, as highlighted by Jorg, taking consideration the link on the volume dynamic to the GDP rebound, We are expecting in relative terms to have higher lending growth in CN Germany. Overall, we are expecting for the group An increase of the lending growth in all the division of the group. The 2 division were expecting a higher in relative terms, Also connected to the development of the company are CE and Commercial Bank in 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 €40,000,000,000 of euro to Stage 2 loans if you look Q4 2019 in comparison for quarter 2020. As a matter of fact, the overall percentage of Stage 2 loans In relation to the total amount of loans, it's around 18%. Just to give you the detail about Italy, The percentage in Italy is 15%. So out of the total amount of loans that we have in Italy, 15% are in Stage 2 loans. If you look to the coverage, in Italy, the coverage is 5%.
To put this into perspective, The amount of moratorium loans that we have in Stage 2 is near 68%. So this is also explaining to you The amount of overlay provision that we had in 2020 because a portion of the 46 basis Musier. Point I was highlighting to you before are deriving from this movement. The movement to Stage 2 are deriving either from the movement of the PD percent of the obligor or more specifically by Specific analysis that we did on the most impacted sector by COVID-nineteen.
Thank you. Next question, please.
The next question is from Adrian Chiqui with Credit Suisse. Please go ahead.
Hi Moustier. 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 The European banks, Pierre. Still, you're proposing an 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 tracked? Or is this something that you return to move towards the 200 Mouffier. 250 basis points range. And on the fee income, you've mentioned the upfront component of investment fees was at the highest level in 3 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 1, including any Potential performance fees that are in there will be answered by a voucher. On the Capital One, I'll hand it over to Stefano in a second. The only thing I think that's fair to remind everyone of is that we will have at the AGM in April 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 review potentially review our strategy. So I think the very forward looking component of your question that I think would need a little bit of Patience.
But definitely on 2021, Stefano can answer on the capital. Maybe Stefano, first on the capital and then Wouter on the fees.
Thank you, Jorg. So as I was highlighting before, our medium- to long term CTMDA target is confirmed, so at EUR 200,000,000 EUR 250,000,000. In 2021, in relation to evolution of the Capital, we have fundamentally 3 macro components. So the first one is the underlying net profit, net of the dividend distributions Policy that I was highlighting before. The second one is regulatory headwinds dynamic that is Below 140 basis points of capital, the third one is the business volumes, Meaning the risk weighted assets connected with the business volume increase that we are expecting during 2021.
As a consequence of that, We are expecting also at the end of 2021 to remain with an NDA buffer well above 300 basis points. Capital allocation is a key of our strategy. As highlighted by Jorg, after the GM, the CEO together with the Board, we have reviewed 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. So York, I can get that back to you for the other part of that question.
Yes, that was quick. As regards to the upfront fees, They are roughly a third of the investment fees.
Gustier. Thank you very much.
Thank you. Next question please.
The next question is from Andrea Vercellone with Exane. Please go ahead.
Moustier. Yes, good morning. Two questions. 1 on NII, the other one on The profit guidance for 2021. On profit guidance, EUR 3,000,000,000 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. And also, I'm a little bit surprised that the contribution from the replicating portfolio in 2020 With basically the same number as in 2019, despite the fact that all swaps keep rolling off. So I'd like to know if you can give us an explanation of why is that? What are the moving parts?
And what Muthier. 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 deposits. So as maturity as deposits go up, Obviously, also those volumes go up. But on the other questions, over to Stefano.
Thank you, Jorg. So in relation, I will start from the tiering. We have around €24,000,000,000 of Deposit in ECB considered for the tiering. The estimated impact from NII perspective is around Muthier. €100,000,000 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 1 point Mouffier. €4,000,000,000 We were stable 2020 compared to 2021 because it's the net Benefit of the replicating strategy, so it's including the dynamic of the fixed component, but also dynamic of the floating leg Of the replicating, as you have highlighted, during 2021, due to the rolling Of some of the previous executed hedge, we are expected a slightly less contribution from the regulated 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 €100,000,000 the final amount of DTA's write up, as you know, will be dependent, however, From the TTA test that will run-in the 2nd part of 2021 and will also depend on the future provitability of the bank going forward.
Thank you.
Sorry, my question on deposits So at the ECB was not what is the amount under tiering, but what is the excess deposited Over tiering, could you disclose that number?
Yes, you can have that also in the balance sheet. The excess that we have over the tiering has increased during the year Gustier. It has reached more than €100,000,000,000 at year end.
Moustier. Thank
you. And
the next question is
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. Moustier.
Just to follow-up, please. 1 on the NII. My understanding from the call is that you upfronted some contribution Muthier from the TRT 3. So I'm just wondering because of the new cost conditions, just wonder what should be The run rate from now on and whether we see a further decline in the Q1 of this year. The second question is on your tangible book.
I mean, you are deliberately, course, reducing the loan book, that's the understanding. Your quarter 1 is improving. I mean profitability was not great this year, But your tangible book at Page 23, it keeps falling. So you don't have, if I'm not wrong, big hedging policy effects, I mean, in place like the other European banks. And you for sure have some benefits from Gustier.
Hi, Access Reserve. So I'm just wondering whether there is a structural impact in terms of Muthier. But 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 sort of, Let's say one off impacts on Telstra 3 increased terms in the Q4 and the implications for the run rate as well as the sort of moving pieces in the tangible equity.
Yes. So as we highlighted before, the contribution in the quarter Muthier. We're showing an improvement of €37,000,000 If your question is related to the RAN contribution, it's around €150,000,000 per year that would remain stable over time. So we will not have a further pickup during 2021, considering the current take that we have in relation to TLTRO3. In relation to the tangible book, As a matter of fact, the dynamic quarter on quarter is fundamentally connected to the impact Mouffier.
That are from non operating items like the DoD that is clearly a one off and the contribution of the additional Tier 1 coupon Mouffier. And cash is for around €200,000,000 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 exposure. Having said that, The sensitivity that I mean from the FX currency due to the participation has reduced taking also Into consideration the sale of Yape that we had during 2020.
Thank you. Maybe just to add, Domenico, on the net benefit from the TLTR-three, this is exactly in line with what we said before. Before they improve the terms, you remember we had a net benefit of €75,000,000 Now they extended the Gustier. The bonus payment, if you will, from 1 year to 2, so it doubles to the €150,000,000 that Stefano mentioned. Next question, please.
The next question is from Antonio Reale with Morgan Stanley. Please go ahead.
Hi, good morning and thank you for the presentation. I would also like to add my thanks to Jean Pierre for the tremendous work delivered. Gustier. And I've got 2 questions, please. 1 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's capital plan with their Q4 results. So 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 Noussier. The you, Jean Pierre and the regulator have been talking about. So I'd like to hear your thoughts there.
And my second question is on The following measures, as I said, if you could talk about this a little bit more, how is demand for such schemes coming through for both common guaranteed loans and moratorium And how are these performing so far? Also if you could put this into context versus your expected, I think it was 6% default rate for the monetary Please. Thank you.
Thank you, Antonio. The government guarantees and moratoria will be answered by TJ. And then on the capital distribution, again, just bear in mind sort of the long term outlook on excess capital, I think, is Fair to wait for our new CEO, but for 2021, for sure. And the sort of short term risks, if you will, from ECB, Restrains not restraints will be answered by Stefano.
Yes. And so your point was relation Muthier. Potential, let's say, headwinds in relation to the capital distribution. So you have seen our capital and the MDA buffer that Muthier. We have clearly, we comply with ECB.
Having said that, we do think that Muthier. 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. And this is why the capital distribution, the extraordinary one, It's subject to also ECP repealing the overall distribution recommendation that currently are in place.
And on that one, I think, Antonio, you should take comfort from the fact that they used the wording unless there is a material adverse change. So I think if you read the press release from the ECB from December, that should give the observant reader some Muthier.
Thank you, Yorg. Antonio, on the moratoria, clearly, just to point out, in Germany, all the moratoria have expired. We've observed very little Sign of deterioration. And in Australia in Austria, sorry, is also a lot have been expired. See, twothree have expired.
And they are clearly the exploration of what we have seen It's better than what we have projected. And the remaining of the CE 1 third will happen in the course of Muthier. First half of this year. In Italy, about 20% will expire. Clearly, the moratoria has been extended to June.
We think they will And but we cannot rule out further extension. So in there, clearly, in Italy, today, you've seen that in the annex Muthier. That we have put in on Page, I think, 14 in the annex side that of the So called €22,000,000,000 of original moratoria, the expired is about €12,000,000,000 So we continue to see that moratorium is expiring sort of very quickly. In terms of the guaranteed Aside, we will be closer to the RMB20 1,000,000,000. I think a large part will be taken in Italy.
I think we've exceeded our so Call target of €15,000,000,000 The granted amount so far is €15,600,000,000
Muthier. On this, Antonio, 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, while as highlighted by TJ, Still we have demand in Italy even if at a lower growth pace in comparison with the last quarter. Gustier.
Thank you. Next question please.
The next question is from Delphine Lee with JPMorgan. Please go ahead.
Gustier. Hi. Thank you for taking my questions. So I would like
to just come back on
the Mouffier. And just wanted to understand a bit what kind of default rates you expect on this and When do you expect NPLs to peak? And I think in the past, you have given us a bit of some default rate assumptions that you have for 2021, 2023, if you could Gustier. And just maybe a very quick one actually on net profit guidance, which is now above SEK3 1,000,000,000. 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 moratorium, default rates expected development will be answered by TJ in a second, and the guidance Will be taken by Stefano. Maybe T. J. First.
Yes. Thank you, Jorg. Hi, Daphne. Clearly, the moratoria, as I've 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's far too early, very little before. But again, Muthier. The bulk of the moratorium will be expiring in the middle of this year. See, if we strip out what is really in NP It's closer to around the 5% type numbers.
So this is much lower than our projection.
Thank you, TJ. We'll actually have the underlying profit guidance answered by Wouter.
Yes, again, very short. On systemic charges was your Question. So we confirmed our guidance for systemic charges around €950,000,000 for 2021.
Muthier. Otherwise, I would just argue that greater than 3 also 3.5 is greater than 3. Moustier. Next question, please.
Okay. Thank you.
The next question is from Benjie Creelan Sandford with Jefferies. Please go ahead.
Muthier. Yes, good morning. A couple of quick follow ups for me, please. First of all, just on asset quality and NPL, I mean, you've pointed to NPL driving in 2021. I just wondered whether you could be any more specific on the expense.
And on the Stage 2 loans you've already touched on, can you give any detail on what proportion of those Stage 2 loans relate to either loans under moratorium or also with customers associated with guaranteed loans. My second question was just whether you can disclose the level of unrealized gains on the bond portfolio at the end of the year Perhaps 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 the gains to support trading 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 2 percentage the percentage of loans in Stage 2 and the moratorium guarantees Muthier. TJ, in a second. And the unrealized gains on 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 Help to Collect bucket, And there's only a very limited amount we can sell.
But then of course, there's still some numbers in fair value through OCI and I'll hand that to Stefano. But maybe TJ first on The Stage 2 loans and how much of that is moratorium and guaranteed?
On the Stage 2 loan for 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 3 in Q4, something in the order of almost over €15,000,000,000 And the Stage 2, Within the moratorium side, it's around 70% of the outstanding today. So a large chunk. So we feel Very comfortable that this so called proactive classification will enable us to anticipate future In this year, in 'twenty one.
Thank you. In relation to fair value reserve on financial asset, at year end, we have near €800,000,000 positive Gain, this is splitted in around €1,000,000,000 It is Positive in relation to sovereign. Out of this, around €400,000,000 is the portion of the Italian sovereign as already highlighted by Jorg. We have a portfolio around €53,000,000,000 of Italian governments. More or less, half of this is held to collect.
Moustier. Thank you. Next question please.
The next question is from Patrick Lee with Santander. Please go ahead.
Moustier. Hi, good morning everyone. Thanks for taking my question. Firstly, a general one on the net interest income and business volume and then the second one on asset quality. Muthier.
Firstly, on the net interest income weakness, which part of it was driven by lower volume, which you alluded to in the presentation 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 sizable loan contraction in CIB and in geographies outside Italy. So I just want to ask you like which are the segments of your loan book that you are most wary of at this point in time? And secondly, on asset quality, I think the provisioning charge was clearly at the lower end of guidance this year for Q4.
But within that in the detailed disclosure, there is a big jump in the Musier. Specific charge from 36 basis points to 89 basis points. You indicated that there was some proactive recognition of unlikely to pay driving this. But do you think you can give us some qualitative comments on the underlying actual charge, like if you had not done these extra cautious bit with specific charge have Mouffier. In the Q4.
And also how does this 89 basis points specific relate to the guidance for 70 basis points next year? And as I said, I assume that by 20 21 given the overlay taken, the majority of this 70 basis points outside regulatory would be mainly specific or you're Mouffier. So may some sort of release from the preampted provisioning already. Thanks.
Thank you so much, Patrick. I'll hand over the asset quality to T. J. In a second, especially sort of cost of risk and split in 2021. And then on the NII And risk appetite sort of consumer loans volumes to Stefano.
Maybe T. J. Can start with the asset quality.
Yes. Thank you, Yorg. Hi, Patrick. As stated in our guidance, we are in the lower end. And the specific cost of risk, one has to look at for the whole year, the context of It's 47 basis points.
Clearly, in Q4, we have seen clearly for some Countries, particularly the CE, where 2 thirds of the morons have expired, we proactively classify Via the UTP test, some of the files, just to ensure that we do not have the cliff effect. Muthier. And if you then project that with the Stage 2 that we have done decisively, as Stefano pointed out, We've done over JPY 40,000,000,000 of from last year in staging. That 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 have seen as mentioned in one of the questions earlier is much better than what we have I expect this.
So we feel confident of our guidance towards the lower end for this year.
Thank you. Stefano? Yes. So 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, NC.
Having said that, as I like to before, We will normalize our risk appetite throughout the year. And so 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 I said before, when you look to CIB in Germany and Austria, the dynamic was also impacted by prepayment by corporate. So it was not really connected to an underwriting Gustier. The
The next question is from Ignacio Cerezo with UBS. Please go ahead.
Yes. Hi, good morning. First of all, thank you and good luck Moustier. Couple of questions from me. First one is on NII.
We've seen term funding as Gustier. As one of the few tailwinds, if you want, actually, throughout 2020. So if you can give us some information around maturities and if you expect that tailwind to continue. And 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 Gustier. Cost of risk beyond 2021, should we expect additional declines? I mean, 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. And then on the cost of risk outlook, I'll give it to T. J, but just be mindful, of course, he'll give you his best answer. But then we gave guidance for 'twenty one, I think, For a reason.
And again, we'll have an AGM in the middle of April. And so long term questions, of course, are a bit Muthier. But I'm sure TJ will handle that one just fine.
Thank you, Yoch. Inesio, hi. Clearly, it's what Yolked say beyond sort of 'twenty one, We will update during the CMD when we do that. But if you look through the so called 2021, A lot of action has been taken in terms of either via overlay proactive classification. So we think Hopefully, by 2022 when the world start to normalize that things It should be normalizing, but it's too early to mention any specific any cost of risk guidance for 'twenty beyond 'twenty one.
Yes. Maybe the other one on Stefano before he answers that, just quickly, Ignacio. I mean, 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 organic headwinds and Cost of risks were at the time that made it made sense at the time. So then it's up for you. But as DJ said, we'll have a Capital Markets Day after the strategic review.
Stefano, on term funding.
Yes. Thank you, Jorg. So the dynamic of the term funding contribution to II is dependent on 2 elements. So 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. So we are 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 are in a really strong liquidity position. So 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.
So if the risk weighted asset evolution will be lower than Musier. We expect that we will adjust the funding plan accordingly with a potential benefit on TNAI.
Thank you. Gustier. Next question
please. The next question is from Alexey Lugovtsov with Bank of America. Please go ahead.
Hello. Thank you very much for the call, and thank you for proposing large capital distribution. And I wanted to ask, In the light of big distribution to equity, would you expect to exercise your right to Muthier, paid coupons on cashless instruments after May 2021.
Thank you so much. This one is for Stefano, who was here even when we launched the cashiers.
Yes. As we did during 2020, also for 2021, The expectation is to pay all the coupon of additional Tier 1 and the use of fruit on the cash is, so the answer is yes. Thank you.
Next question.
Okay. Okay. Thank you very much.
You're welcome.
The next question is from Hugo Cruz with KBW. Please go ahead.
Hi. Thank you. So 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?
Are they going to be specific catalysts such as, for example, the new CEO being on board or knowing the results of the ECB stress test Gustier. Well, perhaps getting to the level of vaccination where you cannot be sure on this GDP growth forecast. If you could explain that to me, it would be great. Thank
you. Hi, Hugo. Well, thank you very much for the question. I mean, I think Muthier. What we've said as regards the current situation, I think we've been restrictive Muthier in 2020 and we can expect a normalization.
But 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. And maybe TJ wants to add something on risk appetite?
Just to add to what Joerg mentioned, Muthier. Clearly, when we look through one of the part that we will continue to follow is Mouffier. The risk discipline, the risk culture, but 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. So I think it's fair to say that T. J. Has managed over the last 5 years to firmly ingrain the risk discipline in the organization, and that will Moustier. Bar any change in strategy, but then of course the details of that shape will ask for patience.
Thank you. Next question? Gustier.
Gentlemen, there are no more questions registered at this time.
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
Gustier. Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephone.