Ladies and gentlemen, welcome to the Société Générale conference call. Frédéric Oudéa, Chief Executive Officer, and William Kadouch-Chassaing, Deputy General Manager, Head of Finance, will present the group 2020 results. Gentlemen, please go ahead.
Yes. Good afternoon to everyone. Thanks for attending this call. I hope you are all well. Let me just welcome Slawomir Krupa. As you know, Slawomir has taken over Séverin Cabannes as head of GBIS activities, with all the management team, he will help me to answer your questions after a short presentation, which I will deliver with William Kadouch-Chassaing, our CFO. Let's immediately turn to the presentation and page, slide four. Just a few key highlights for the fourth quarter results. First of all, this quarter confirms the rebound that we observed in the third quarter, despite the still uncertain and sometimes challenging environment, with revenues which held well, up 1.6% compared with the third quarter, they're down by moderate minus 2.3% compared with last year. Retail activities remained resilient. Market activities confirmed their progressive normalization, Financial Services and Financing and Advisory were very strong.
Second, we have complied with our major guidances. We had a target on cost. We are landing exactly there with EUR 16.5 billion of underlying cost, minus 5% compared with last year. We will comment a lot on the cost of risk and the quality of the portfolio. You have seen that we were very conservative in the positioning of the fourth quarter, and despite this, the cost of risk landed at 54 basis points for the quarter, 64 basis points for the full year, at a lower level than expected, and with EUR 1.4 billion for performing loans, which is a big buffer. Third, regarding the capital, CET1 is strong at 13.4%, well above our guidances. We'll come back to that.
When I see 2020, let me just highlight that beyond the results, I think we have really put forward some key strategic initiatives which will pave the way for the future. We announced the combination of our French retail networks. It's a big, important step forward to maximize the client satisfaction with a new bank, which will be more efficient, as well as accelerating the development of Boursorama, our leading online bank in France. We also presented a very promising trajectory for ALD. ALD, which is also releasing very strong results today, and KB, our Czech subsidiary. Regarding global markets, we will come back to that, I'm sure, during the presentation and our discussion. We are really well on track on the redesign of our product investment solution with structured product portfolio. This is something positive.
Of course, it's very important on share of the return. As you know, we are again allowed, like European banks, to resume payment of dividends. We are proposing to the general meeting of shareholders a cash dividend of EUR 0.55 per share. It's in line with the maximum according to the ECB recommendation. We aim to complement this distribution with a share buyback program, which would take place in the fourth quarter of 2021, provided, of course, the ECB reveal its recommendation in September. Before entering into the figures, just two words on two structural trends that this crisis is accelerating and which will be a focus for all of us in the coming years. Slide five. First on the ESG. Our leadership is recognized in our Best-in-Class 2020 Extra Financial Ratings, as you can see on the slide.
Certainly in energy transition, we earned number two worldwide in renewable energy financing for 2020 and number one in advisory. This is really a significant achievement. We have, as you know, a leading expertise there. Just to put this market in perspective, it's a $2 trillion U.S. market. It's growing at 15% a year. When we just look at the flow of new investments in 2019, it was $280 billion. It's something which is big and which will get bigger and bigger every year. We have started to align our credit portfolio, and in particular, announcing the reduction of our portfolio on fossil energy, which is a parallel shift with the development, obviously, of our portfolio in renewable. Beyond that, as you know, ESG is very diverse in domain, and actually that makes also the complexity of that so diverse.
Let me just highlight that we are very well recognized as an ethical bank. We rank number two worldwide according to Vigeo Eiris, in the behavior that we have with our clients. In terms of diversity and inclusion, we have also here ambitions. We have more to do here. Let's remain humble like many companies, but we aim to have a 30% percentage of women in our top 200 management position as well as our top executive committee, and we are going to make progress there. We were retained in the Bloomberg Gender-Equality Index for a second year in a row, alongside just 380 companies worldwide across 11 sectors. The second dimension, which is of course key when we should think about the transformation of our business model and our way to operate is, of course, digital transformation, the growing usage of digital technology.
We have now a very comprehensive benchmark that we use to monitor our progress. You can see here some percentages regarding our different activities. Let me highlight, of course, for example, Boursorama ran very well, as well as our Russian subsidiary, where we saw actually a strong increase of our digital sales this year. We have, I think, built a pretty robust foundation in terms of IT. We have more to do there, like all banks. As you can see on this slide, we have, for example, 80% of our infrastructure on the cloud. It's a hybrid cloud. Predominantly still private, but we develop progressively also access to public cloud, as well as the usage of artificial intelligence with 290 case usage. We've already some significant benefits in terms of efficiency and revenues.
Last but not least, I think Société Générale is certainly a bank able to think about new business model, Boursorama is a good example of that. This, in 2020, we were able to further invest, for example, in the acquisition of Shine. It with, again, traditional clients. It's a different way of thinking, the providing banking services and beyond, but also with Reezocar, which is a online used car sales platform for individuals. It's also true with the acquisitions of Treezor, which is providing actually core banking system to neobanks, to competitors, if I may say, but we are happy to do that.
As well as a more disruptive business model with an internal startup that we have developed, which is called Forge, which works on everything which is related to digital asset, crypto asset, as you know, an area which is developing and, for example, in the U.S., but also in close contact with regulators in Europe. Here also we see a good opportunity in the mid-term, of course. Now I will turn the floor to William, who will comment more precisely the figures.
Thank you, Frédéric. Hello, everyone. I hope you are in good health, and I thank you for the interest you take in our company. Now I turn to page eight, with the key highlights of Q4. There are three key elements for us. Number one, we have positive jaws this quarter. When you adjust revenues and costs for perimeter and foreign exchange impact, you end up with revenues down 2.3%, costs are down 3%, so positive jaws. As Frédéric said, this is on the basis of resilient retail, strong growth in advisory and financial services, and normalization in global markets, combined with constant cost default. Second point, contained cost of risk. Cost of risk stands at 54 basis points annualized for the year.
It is important to note, as Frédéric did, that it is mostly related to stage one and stage two provisions, which amount for 29 basis points within the 54 basis points affecting the quality of the portfolio. Third, resilient profitability comes from the fact that we have another quarter of Q3 of different profitability, EUR 631 million underlying, and EUR 470 million published. Let me be more specific on what it contains. We have in the published in net income, the factoring in of restructuring charges for about EUR 210 million, which pertains to the cost plan we have launched in market activities and some support functions. We have also the impact of the sale of SG Finans, which has been closed during the quarter, and therefore [audio distortion] . The latter being largely a non-cash item, but it relates to currency translation.
We would like to highlight what is on page nine, which is the fact that this is the seventh year in a row where we have been able to decrease cost in absolute terms. We meet the target, as Frédéric said, at EUR 16.5 billion underlying cost. To get to the reported, you add the EUR 200 million I just referred to pertaining to cost to achieve or restructuring charge. What is important to note is that we had, obviously, some additional costs during the year. Single Resolution Funds contribution increase, COVID-related costs, as we had said, for about EUR 100 million. Obviously, some cost reductions stemming from M&A, and they roughly compensate. You have EUR 800 million cost saving. I would like to stress the fact that we consider that within this EUR 800 cost save that we have achieved in 2020, we consider that 60% are structural.
The structural component is largely explained by cost-cutting initiatives that we had launched in 2019, in CIB, in headquarters of International Retail, in the headquarters of French Retail, and other efficiency initiatives. Some initiatives that we have taken in 2020, in the context that you know, which we consider will bear fruit over time. There's a more variable part in nature within this EUR 800 million, as it is logical.
Looking ahead, I want to stress as well that we reiterate our strong commitment to further decrease the underlying cost base by 2023 relative to 2020. 2023 cost base down relative to 2020. In other words, this is based on the execution of plans we have largely launched already. The EUR 450 million decrease in the cost base of Global Markets from 2022 to 2023, as we said. A portion will be executed as early as 2021. 550 million decrease in cost base of French Retail Banking in 2025 relative to 2019.
We have already mentioned that with Sébastien Proto a few weeks ago. Further reductions that we had adhered to, including further industrialization of process and support functions. For 2021, precisely, we steer the company with positive jaws. This is a clear objective for us. We see a better outlook in revenues in 2021, and we will maintain a very strict discipline on costs. We expect only a slight increase accompanying business recovery. On the cost of risk, much has been said already with the 64 basis points, to be compared to the 70 basis points guidance we had given. We see 2021 as a year where the cost of risk is expected to decline relative to this 2020 level. One point I would like to highlight pertains to non-performing loans ratio.
As you can see, it remains fairly low and combined with a decent coverage ratio. In absolute terms, the inventory decreases because we are able to sell part of these inventories or to do some write-offs, so we continue the active management. We give you more detail, as Frédéric hinted, on the cost of risk, because we know that there are obviously a legitimate question on that. If you turn to page 11, you will see the split between stage one, stage two, both for the quarter and for the year, as well as between the pillars. As Frédéric said, for the whole year, stage one, stage two explains 41% of the provisioning, and for the sole Q4, it explains 53%. It's a very important number to keep in mind for the future.
Turning to a debate that is active in the marketplace, and we have questions from you in the previous calls, which is the exposure that is left on the balance sheet pertaining to COVID-related measures, be it moratoria in the countries where we have accepted them, or state guarantee loan, particularly in France. There are two points we would like to make. Number one, we do not observe a significant deterioration of the creditworthiness of counterparties at the exit of moratoria. You see here the 2.2% of total moratoria in stage three. As far as we are concerned, the actual defaults are actually lower. That is for all areas where we have moratoria. We have a certain point, a manageable residual exposure. Take we have more than 85% of our moratoria which have expired.
If you look at state-guaranteed loans, you can see that the residual exposure we have is about EUR 2 billion. 90% in average of the amount is guaranteed. We have, assuming what Banque de France has been hinting that maximum we could see 5%-6% potential default. That's obviously a very manageable exposure, knowing that we have already provisioned a large portion of it. Turning now to capital. As Frédéric highlighted, CET1 ratio stands at the end of the year at 13.4%, which is obviously well above our guidance for the year. This is equivalent to a buffer above MDA of 440 basis points, which is to be compared with our midterm target of more than 20 basis points above MTA. What does explain the growth between Q3 and Q4, which is of about 30 basis points, is, number one, organic capital generation, 27 basis points. Number two, securitization.
We continue to do synthetic risk transfer. We did almost EUR 4 billion of it during the quarter. Equivalent to 40 basis points. M&A, 10 basis points stemming from the sale of SG Finans. On the regulatory, you have both headwinds and tailwinds over the quarter. You have obviously 36 basis points out of TRIM. For the whole year, it is 41, so 36 for the quarter. You have, as expected, the tailwind from the change in the Prudential accounting for software for 16 basis points. When you look at the rest of the balance sheet, automatically, each and every metric, they are strong. Capital leverage ratio is 4.7%, and on the liquidity, we've completed 40% of our program. Liquidity reserve, you have these things that I'm sure in the supplement, stand at EUR 243 billion. We give you the amount of outstanding of TLTRO.
We know it is an area where we have questions. On the going forward, the target we have, and I insist that there is a target, clearly, for us, is to run the company with a buffer above MDA at any point in time, including after Basel IV of more than 200 basis points over MDA. That's obviously factoring the fact that we want to fuel our business through organic RWA. We want to come back to a cash distribution based on the 50% payout, and we account for the remaining impact of TRIM as well as Basel IV. On TRIM, we think that we could have another close to 30 basis point impact in 2021. For Basel IV, we update the figures with the last information that we have, and you know that there was an EBA call for advice based on the EU Commission request in December.
We have adjusted our numbers on that basis, plus the forecast balance sheet, and we now come up with an impact of EUR 39 billion additional [audio distortion] in 2023, or roughly 150 basis points. That includes FRTB. This is to be compared with the previous number we had given to you, EUR 36 billion excluding FRTB. Now we see EUR 39 billion, including FRTB. For 2021, we think we will land well above this target. A few things I've already mentioned, such as TRIM, will impact the Q1 target in 2021. The dividend, we will go back to the 50% provisioning I mentioned. I want to mention as well that should we be authorized to do the share buyback program that Frédéric mentioned in Q4 2021, there would be an additional consumption of 13 basis points.
Another way to look at it is to say that our pro forma Q1 at the end of the year is 13.3. I won't comment the next page as usual, and turning to the businesses, and not obviously commenting in every metric. French Retail. As you can see, we continue to have progress in all franchises. All right, when I look at outstanding, of course, at pace that is lower than what we had pre-crisis. One area which is to be noted particularly, is the strong growth of outstanding for corporate and professionals, 25%. That includes the state guarantee loan. Outside of it's 2.3%. We continue to make progress in insurance. Unit-linked contracts are up, and as you can see, property and personal protection premium are up as well as the P&C. We have private banking net inflows in Boursorama, at another record we are.
What is to be noted in the outstanding is a deposit growth 15%, which explains why we continue to see margin pressure on the NIM. If I turn to the next page, obviously, you can see that this is a business that is resilient, but still sees some downward pressure, particularly on the NIM side. Mean is down 4% year-over-year in the fourth quarter. It's up sequentially. We continue to have negative impact from deposit interest margin compensated by volumes on the credit side with margins which hold reasonably well commissions. The same trend as we had seen in Q3, which is that it's down year-over-year, but strongly up in financial fees and down in service fees. Still great discipline on cost, all that leads to a 6% return for the year. It's 3.5% for the quarter, 5% when you exclude Boursorama.
If I turn to international retail banking, there again, we continue to see, fortunately, growth in loan outstanding, more even so on deposits as we see in Western Europe. Obviously, the pace of growth in the loans is lower than what we had pre-crisis. Except for some areas where we see a clear peak in activities. You see that in Russia, for example, we are up 18% in mortgages. Across all these regions, we have cost discipline.
When I look at international retail, particularly, let's remember that the return for the quarter is standard 10%, 9% for the year, combined with the contribution of EUR 150 million for the quarter and EUR 531 million for the year. Financial services, which is the next page, had, obviously, a very good quarter. Financial services altogether, post revenues growth of 8% for the year- on- year in the first quarter, combined with a return of 20%.
You have a gross operating income up 12% in the area, and the contribution to the group net income of, respectively, EUR 226 million for the quarter and close to EUR 800 million for the full year. You see this is across the board, particularly strong for ALD. Revenues are up to 14%, but insurance is up 1% as well as gross being up. In total, when you look at IBFS, it continues to be an area where we see above-average profitability at 14%. We have positive jaws in the quarter, and obviously, as we see in other areas, a much better pattern towards the end of the year than what we had in Q2, as you remember. Global market and investor services. Turning to GBIS, I'll finish on that. You have here a few message.
First of all, we see the rebound in market activities that we had observed in Q3 with revenues just above EUR 1 billion for the quarter. Overall, the average quarterly revenues in markets are back to EUR 1.1 billion in the second half, at 44% more than the first half, and this is more in line, as you know, with the historical average. Equity is up 12% in Q4 relative to Q3 and down 7% on year. It is important to note, is that equities are back to the EUR 600 million type of revenue that they have usually, in a context where there is the implementation, or we have done the implementation of the de-risking we had talked about. I'm sure you will have questions on my colleague, Sébastien. To be noted, Asia was particularly strong in equities this quarter.
FICC is down year-on-year at 16%. If you look at it on a full-year basis, it is up 21% adjusted for the runoff activities. We will certainly comment that with your questions, but I want to highlight the fact that we think it's fundamentally linked to a mixed effect. We are, as you know, very strong in the flow rates, as well as in Europe. That was important, just to quote a few case in point, particularly strong for credit. The U.S., in these two areas, credit flow and U.S., we post very strong growth as well, but fundamentally, they are less present in the total portfolio. Talking about financing and advisory, this is obviously a very strong quarter. A 9% growth year-on-year, combined with a return, which is satisfactory, a little more than 18%. The growth is across the board.
Financing activities are very dynamic, +5%. Investment banking, including GCM, ECM, acquisition finance, advisory, as you know, is up 13%, and transaction banking is up 4%. Across the board, a very good performance, and we will continue to fuel that business. Asset and wealth management is more nuanced, with a good performance on Lyxor, +13% in revenues. Decrease in private banking revenues, but there one has to make a difference between commercial revenues, which are stable, and we have net new money in private banking, and the pressure on interest margin, which is what you can see in every retail activities operating in metro countries. In total, you see Global Banking and Investor Solutions results back to a more decent underlying return for the quarter, 9%. Still low for the year, given the first half, as you know.
I would like to highlight the very strong decrease in cost. Costs are down roughly 10% year-over-year in this area, and the group net income is up year-over-year at 46% when adjusted for perimeter and foreign exchange. Corporate center, nothing much to mention except for the fact that it does account for IFRS 5 impact on SG Finans. It does account for some restructuring charges. When you look at the operating expenses in the quarter to Q4 2019 relative to Q4 2020, optically, you see an increase in 2020. If you account for some base effect, they are stable year-over-year. I turn now to Frédéric to continue.
Thank you very much, William. Slide 27. Just perhaps a few words on 2020, taking a step back. I think we did a good job with our clients. We were alongside them, and it's a kind of goodwill that I think we've built. It's true beyond the Société Générale, and the same for the banking sector in France, when I look at the image of the sector, and it's positive. I think we did also a good job with our staff, protecting their health and leveraging on a very strong mobilization, which ensured a smooth functioning of the bank in extreme circumstances. Clearly, of course, we had a difficult year in terms of financial performances, which impacted the confidence of the market.
I really believe, and I think it's reflected in the fourth quarter and the second half, that the current share price does not reflect the valuation of the bank, the interesting franchises. We had really two halves in this year. We have had the first half, of course, the specificity of the impact of the market on one portion of our capital market activities. It should not hide that the rest of the business did pretty well, facing, of course, extraordinary circumstances. The second half shows definitely the capacity that we have, first of all, to adapt the portfolio of products and again, to take advantage of a normalization of the environment. I think we've really laid pretty ambitious and value-creating foundations for the future for some of our core businesses.
I've already mentioned the combination of our French Retail, ALD, KB and Boursorama, as well as transversal initiatives regarding ESG and digital transformation. When I look at 2021, remaining realistic, of course, with still uncertainty on the environment, but with probably a central scenario, which should be that the vaccines should help progressively to come back to something more normal in terms of the functioning of the economies. Our focus is really to deliver, to execute and of course, to take advantage of that to rebuild confidence with the market. We will effectively focus on the trajectory that we have presented on our businesses. We will carry on accompanying our clients. A lot has to be done to help them to find the right approach when precisely things are improving. We will maintain a very strong discipline.
Very strong discipline on the costs, very strong discipline on risk-taking, really, I'm very encouraged when I look at the quality of the portfolio, like William has commented, and of course, on the capital usage. We will, of course, then finalize the strategic trajectory for, in particular, GBIS. We will present in May 10th with Slawomir, where we want to go on the back, of course, of also the first quarter results. We will have then achieved this repositioning of our portfolio. We will also, of course, present more beyond, in the second half, our ESG strategy. In terms of distribution policy, which is important, well, we want to come back again to 50% payout ratio. It will include a component of share buyback. As you can see, we are sizing the opportunity, already in 2021, to implement this policy.
The EUR 0.55 per euro is actually in line fundamentally with this policy, but also adding a share buyback at year-end. That's what we wanted to say. We enter into 2021, I would say, with confidence that it will be a year of rebound for Société Générale. Let's turn to your question. Let's stick to the usual discipline, please, of two questions per person. Please go ahead. Floor is yours.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad. The first question comes from Delphine Lee.
Hello?
You could ask your question.
Delphine, you might be on mute, or I don't know, but.
Yes, sorry, I was indeed on mute. I'm sorry about that.
It happens.
Sorry.
Yeah. No, don't worry. That's fine.
Sorry.
Hello, Delphine.
Thanks for your patience. Two questions. First one is going back on capital. You're basically at 12% Basel IV. The question is, why not increase the payout ratio for 2021, for example? You are already paying over 50% for 2020. Just wondering your thinking for 2021, which is at this point unchanged. Related to that, what's the rationale for not increasing the share buyback component both for 2021 and actually 2020, given where the share price is? My second question is on the revenue guidance, which seems to suggest decent, let's say, growth for 2021. If you could provide some color on, does that assume further pressure in French retail, and what is your assumption for CIB? Thank you very much.
Delphine, perhaps I can take these two questions, of course, we can go more in detail with additional questions. First, let's start with revenue. Clearly, we expect a rebound on revenues. It will vary according to the businesses. It's of course, particularly true on capital markets. Again, during the questions, we might enter more in detail. Of course, we had this impact in the first half of 2020. The kind of strategy we are pursuing means that we should not have that. We have a positive start of the year, as we've said. Of course, we want to be prudent and wait a few more months, I think we are moving in the right direction there. Beyond, I think we are positive for our financial services and financing activities.
On the retail side, it can still vary, of course, depending on lockdowns, things like this. We might see the same kind of trend, and same thing we will enter probably in the detail when we will comment on those specific businesses. With sometimes, of course, erosion of margins related to low rates, and at the same time, probably an improvement of our fees. Overall, if you will, the perspective for revenue is of course more positive compared with 2020. In terms of capital, listen, we want, of course, to remain flexible, and 2021 will be still a strange year. We are capped in what we can immediately distribute till end of September and might have the opportunity to complement in the last part of the year.
We consider that the kind of program we are proposing, equivalent to the dividend, is a way to definitely distribute something attractive, while at the same time protecting, keeping a strong Tier 1 at the moment of still uncertainty. Trying to give maximum comfort to investors on that front. Then we will see where we stand end of the year and beginning of 2022. We'll have much more clarity on many topics, economic environment, the real impact of this crisis, whether or not Basel will be implemented in 2023, which is probably a conservative agenda and schedule when you think just about the political process which will have to take place. I think we will have more visibility there to adjust if needed.
We want to remain flexible, but we consider that we will do as much as we can, of course, given the constraints in 2021. Next question.
The next question comes from Tarik El Mejjad, from Bank of America. Sir, please go ahead.
Hi, good afternoon. Just a couple of questions, please. First of all on costs, you guided for slightly higher costs in 2021 versus 2020. Could you take us through, especially the moving parts, i.e., the French retail, the structuring charges, and then the savings in CIB and so on? What base did you use? Is it 16.5 or 16.7 for this guidance? Second question is on the revenues in CIB. How much of the revenue erosion driven by the derivatives de-risking, derivatives business de-risking, is included in Q4, and how much should we expect in the next quarters? Thank you.
Yes. Hello, Tarik. I will turn to William on your first question on cost perspective, and then to Slawomir on your question regarding revenues for GBIS and capital markets more particularly. William.
Hello, Tarik. There are actually three components of your question, if I may say so. The first is what is the base that we look at for our guidance? This is the underlying cost base, is the EUR 16.5, not the EUR 16.7. The second part is, can we qualify the guidance of a slight increase? I think in a sense, if you consider that we had between 2019 and 2020, this 60% of structural cost save, you have at least an indication of what is fundamentally a real decrease between the 2019 and 2020. We think there could be some inflation of expenses, very related to a potential business growth. A bit of discretionary expenses, a bit of variable remuneration, plus of course, some increase in taxes with SRF contribution, which is meant to increase.
These are the components that I don't think makes sense to go in each and every businesses. That type of things that we can see. The third component of your question was, what about CTA? We have EUR 200 here. We have announced that we would have additional restructuring charges, potentially in 2021. I think it has been said already by my colleagues talking about French retail, and you know that we have a number of initiatives to decrease the cost base over time. What I want to say is that we are of the view that this CTA over time is manageable because of the capital position, because of things we can do to offset at least some of it. Because from a shareholder standpoint, again, the dividend provision, back to 50% of the 2021 results and so on, is based on underlying.
Thank you. Slawomir.
Hello. On the revenues, specifically on the global markets side and on equities, it's a function of obviously the de-risking and redesign that we are implementing and which is well underway, but also obviously of the market conditions and in particular, the dynamic between supply and demand for these particular products, which has been favorable to the supply side. Basically, the margins have increased and are helping the overall equation. The answer would be, we are close to the maximum impact, not completely there, assuming a stable situation in terms of margins on this particular segment.
Thank you. Next question.
Thank you.
The next question comes from Stefan Stalmann from Autonomous Research. Sir, please go ahead.
Yes, good afternoon, gentlemen. Thanks for taking my questions. The first one relates to TRIM and your synthetic risk transfers. Would it be possible that you guide for how these two items split roughly by division? Also, is there a connection between the two? Have you done these synthetic risk transfers to cushion the impact of TRIM, or would you think there's potential for more synthetic risk transfers going forward? The second question, going back to capital markets revenue, in particular markets, fixed income looked a bit anemic this quarter. Was there any particular factor driving this, please?
Stefan, hello. William will answer your first question, and again, Slawomir, your second one. William.
Hello, Stefan. With regard to TRIM, we had said two years ago that TRIM related to all businesses, but there was a bulk to be expected more in the CIB activities. This is true as well for the quarter and for the year. With regards to the second part of your question, which is, do we manage synthetic securitization in a link with TRIM? I'd say that yes and no. Of course, we are sensitive to the RWA management of all the divisions, for which we want to tame the RWA growth outside of the organic growth that we have planned. OTD, of course, as well as synthetic securitization, are useful tools. In fact, when you look at the quarter, we do it across all areas. In this quarter, you have something in F&A.
You have a significant portion in French retail, and you also have a portfolio in consumer lending in Western Europe, so within IBFS. It is fairly spread. What we very focused on as far as synthetic securitization are concerned is the return. We do only things which have a positive return for us, i.e., we can do at a good price.
Thank you. Slawomir, on the fixed income.
Sure. I would say a soft quarter for FICC, with no material idiosyncratic events that would be, so by definition, very specific to SocGen. What is specific to us is the mix, and along the lines of what William said earlier, our product mix and our geographical footprint mix is different from obviously the big American players, but some of our European peers. Euro rates are an overweight of ours, and clearly, this was the softer part of the market. The second, not so much specificity, but a business we're well-engaged in is all of the financing and clearly very thin margins on the back of ample liquidity in the system. These two things were a drag, and they are a skew of our mix.
From a geographical perspective, without going into the exact details, we had a very strong performance in the Americas, a decent one in Asia, and again, in Europe something much softer. Lastly, on the credit side, same thing, good performance, much smaller than compared to some of our peers. It's mostly driven by the mix. Marginally, I would add that while to a much lesser extent, there was also some degree of redesigning going on throughout the year in the structured side of that business. From that perspective, the contribution, while not negative, was much smaller than in the past. If you look at the entire year, I would argue that it's still, especially taking into account the structured products heat on H1 in fixed income, it was a fairly decent performance at plus 15% versus last year.
Great. Thank you very much.
Thank you. Next question.
The next question comes from Pierre Chédeville from CIC. Sir, please go ahead.
Yes, good morning. Can you hear me?
Yes. Pierre, yes. Hello.
Good afternoon. Sorry. One of your competitor recently said that regarding the French retail business, most of the profitability, more than 70%, 80% came from SMEs and private banking business. Which in a word, as you said, if you are not a mutualist with more than 25% of market share, mass market business is not profitable anymore, and you have to focus on SMEs and private banking. You said in that context, in a low interest rate, if you have a small market share, you have to develop in priority, SMEs linked with private banking, which means that you have to accelerate the closure of your branches. He mentioned the number of 1,000 branches in France, for instance, for his case. My question number one is, do you share this analysis and do you think that you will have also to go to these numbers of branches?
My second question is related to ALD, which made a very good performance this quarter, mainly due, if I understand correctly, to used car. In a longer term, if you replace cars by trottinette and bikes, I know trottinette is [Non-English content ]. I was wondering if at the end of the day, if you add more seriously the impact of remote working, at the end of the day, my view is to say, is it not fundamentally a deflationary business? What is your view on that? Isn't it time to sell it at the top of the peak? Thank you.
Pierre, I will let Sébastien elaborate on what we do in the French retail. [audio distortion], I might complement on Boursorama, which, as you know, we are the only bank with such a successful alternative model for individuals. Then Diony Lebot , who is the Chairman of the Board of ALD, comment on your question. Before we all move on trottinette, we might think about electrical cars. He will comment. Sébastien.
Good afternoon, Pierre. Let me just remind you that as far as French retail activities are concerned, half of the revenues come from corporates and professionals, and 20% from affluent clients. If I add the two components, that means for Société Générale retail businesses on the French market, it's 70% coming from corporates, SMEs, and affluent clients, which makes us a little bit different, I would say. That being said, clearly our objective is to reduce cost to serve for the mass market. That's what we are trying to do very hard. We are trying to do, and that's something which makes a merger between BPCE and Crédit Mutuel even more relevant. On your last point regarding the number of branches, again, I would say that we closed a lot of branches over the last five years.
Let me remind you that our objective in 2015 was to close 20% of branches in the Société Générale network and 30% of back offices. That's what we did. We announced last December that our objective is to close again 600 branches between 2021 and 2025. We explained why, in our view, the number of branches should decrease in the coming years.
Thank you. Philippe, o n Boursorama, a few words?
Yes. Thank you. Yes. As you remember, and as we explained in December, we do believe that there are two specific trends in the French market. The first one, which was described by Sébastien, with clients, notably corporates, professional, and mass affluent, who still want both a digital experience and the capacity to have access to the human expertise. The answer for these clients is obviously our two networks, and in the future, the new bank. Simultaneously, we have also an important number of people and clients who want only a full digital experience, and we have also the answer for these people, which is, as you know, Boursorama. Boursorama had a very good 2020 year. Still very good regarding the acquisition of clients including, for example, in December with 72,000 new clients, which is a record.
Simultaneously, as I always said, we are monitoring very carefully all the key indicators, acquisition costs, the revenues per clients, deposits, loans, and all these indicators are definitely in the green zone.
We are very comfortable with these two axes to address the French market. [Jenny] on ALD?
Yes, thank you for that question. Indeed, ALD has had a very strong performance this year, both in terms of operational capacity margins and very good remarketing, both in volumes and prices, which was a bit of unexpected in the pandemic situation, but indeed a very strong secondary market. It is not at all our view that people will move to trottinettes or bicycles. We believe that there is a long-term structural trend shifting from ownership to usership for cars, and hence really favoring the model of ALD, who is already a leader in terms of fleet financing and leasing, and has a very good positioning also in private leases. We continue to have growth. We have signed a very interesting partnerships both with manufacturers such as Tesla or Ford, but also working with corporates and banks.
As you know, we have announced our 2025 strategic plan, MOVE 2025, where we target a significant increase in terms of contracts to 2.3 million. We also build on a second very important trend, which is electrification of fleet, where we target 30% of new deliveries to be electric vehicles. ALD is already very well-positioned in this segment. We still see a significant growth in the market and are well-positioned to be a mobility leader building on structural trends.
Thank you. Next question.
The next question comes from Omar Fall from Barclays. Sir, please go ahead.
Good afternoon. Sorry, can you hear me?
Yes, we can hear you, Omar. Hello.
Hi. Hello. Just firstly, just going back to costs, I wanted to clarify the commitment that 2023 underlying expenses will be lower than 2020. Does that mean that costs will keep growing and then you get a sort of cliff effect in 2023? You'd expect a gradual decline from 2022 already, especially as some of the EUR 450 million in savings from GBIS come through? I just want to make sure my kind of reading comprehension isn't too bad. The second question is just if you could update us on revenue and/or, if you don't want to touch on revenue, but at least loan growth outlook for French Retail excluding the state-guaranteed loans were like in the low single digits. Do you think that's sustainable?
Even with the recovery out of the pandemic, there's obviously a debate around corporates having to cut their gross debt and question marks around mortgage growth. I'd love to get your insights on that. Thank you.
Yeah. Omar, okay. I will let William comment on the cost and Sébastien on the volume and the activity on credit. One thing to add to understand the perspective on revenue retail is also the TLTRO, how we compute that, I think, because it's important. William.
Hello, Omar. Very simply put, we want to run the company with positive jaws through the period. We see a slight increase in 2021, consistent with a better outlook on revenues after a very strong decrease in 2020. We see a decrease in 2023 relative to 2020. It's not a cliff effect. From 2022, we expect a stabilization and downward trend to resume.
That's just on the TLTRO, on the volumes of credit, just to explain that we have not computed the benefit of the TLTRO, which will help also on the revenue side.
Yes, maybe to explain. Effectively, a large part of the potential benefit stemming from TLTRO is associated with French Retail, to the point of Frédéric. In 2020, we have a very limited benefit stemming from TLTRO, both from the existing scheme and the potential new bonification for which we have recognized nothing as of yet. We have a prudent approach, which is to recognize the benefit of such bonification when we are certain that we are able to meet the requirement as far as volumes are concerned. We see a benefit of the existing scheme 2021, 2022, 2023, and potential additional benefit stemming from the new scheme that has been announced in December that could be seen in our revenues starting towards the end of 2021, and again 2021, 2022, 2023, as we recognize the benefits.
As you know, over three years, we have made it clear in the appendices of our accounts.
Based on the activity on the loan side.
Yes. Good afternoon, Omar. On the credit activities, Q-catch was more dynamic. On the retail side, we had good momentum in volumes, but also in margin in home loans. On the corporate side, we had high volumes in medium long-term credit production. Your question was also about what is exactly the momentum if we exclude PGE, in terms of outstanding, the growth for medium long-term credit is +2.3, excluding the government-backed loans. So +2.3 and, [so that's positive on a long term]. Credit positive on the retail side for all home loans and less positive for consumer loans and short-term credit facilities.
Thank you. I guess I was really interested in your thoughts going forward on the outlook for credit growth in France, if I may.
Okay. As Frédéric said, our central scenario for France, for the French market, is progressive in continuing recovery, obviously depending on the sanitary context. Central scenario is more positive.
Omar, if I may. First, when you look at the Q4 macroeconomic figures, first, the investment by corporates remain relatively good. Of course, again, if the people have the feeling the pandemic will be behind, thanks to the vaccine, I think you could think about an acceleration. consumer, I think it's a little bit the same. People save a lot because they can't spend today. We've seen a rebound of spending when there was the end of the lockdowns, for example, on car acquisition. I guess we can have also the same thing if things are improving. That's why we are, if you wish, a bit cautious. It depends so much on the environment the coming months, but we consider it should remain relatively robust. Of course, on the guaranteed loans, one of the key questions is whether people reimburse or not. It depends.
They might consider it's a question of insurance, if I may say, for cheap price. Same thing, we will know a little bit more in the coming months what they want to do. We will have, I think, more clarity on this in four, five months.
That's very helpful. Thank you.
Next question.
The next question comes from Jean-François Neuez from Goldman Sachs. Sir, please go ahead.
Good afternoon. Thanks for the call. Wanted to ask about global markets in terms of the revenues. There was the comment that the mix didn't lend itself to the kind of boom that we saw at bigger competitors in fixed income. I just wanted to understand whether, if as is in the market consensus now, that boom deflates slightly in 2021, it is right that as a result of this, your expectation you should outperform peers? Also in equities, I wanted to understand whether there was any mark-to-market effect that was blurring the comparability with last year or the previous quarters in the revenues of equities. In particular, when we observe the factors underlying the hedging performance, they have improved very sharply in Q4. I just wanted to understand commercial run rate versus maybe the P&L impact?
My second question was on the capital ratios, which has progressed very strongly in comparison to expectations. Congratulations on that. In the past, there was the TRIM guidance, there was also an expectation that you'd have some procyclicality hitting you towards the end of 2020. Didn't look that it was singled out as a factor that your capital ratio, at least nearly as much as was initially expected. Do you expect this to happen with a delay, or is it something that you believe your updated macro projection will no longer warrant your guidance? Thank you.
Yeah. Jean-François, hello. I will pass the floor to Slawomir for your first question and then to Diony on the downgrade of the rating of the counterparty. Slawomir?
On the fixed income. Hello, Jean-François. On the fixed income, I would say, well, we would outperform peers if the market conditions would be most conducive where we are overweight versus them, which is not exactly what I said. I was talking about our own overweight versus what happened in Q4. I would not necessarily go to argue that we will outperform simply because, say, U.S. rates deflate. It would depend on what happens segment by segment. I would say, another way of putting it, if all of the segments of fixed income perform reasonably well, we would be certainly closer to the market average. I would not link outperformance of our FICC to the deflation of the current, say, overactivity in credit or U.S. rates, for instance. I hope I'm being clear. Please follow up if I'm not.
On the equity side, this is mostly a balanced commercial performance and more a matter of commercial performance. A decent flow at decent margins. It's not some sort of a windfall coming from much improved hedging conditions, especially as through the redesign that we're going through. We have vastly improved, in my view, the way we operate, but lowering our exposure and lowering our sensitivity in terms of managing the underlying risks. The pure risk management of it, the pure hedging result is minimal, actually. It's on the contrary, decent commercial performance. As I said earlier, with decent margins, which have improved because of the, I would say, slightly lower supply, while the appetite was clearly there for these products. That's the dynamic. I hope this addresses your question.
Sure. Diony on the ratings.
Yes, indeed. During the year, we kept quite a proactive stance in terms of updating the ratings in the entire portfolio. We do this at least annually at any event, and also, of course, each time we are granting new facilities. We did already take an important part in terms of RWA inflation, which is close to EUR 7 billion this year, and it's included in our numbers, of course.
Thank you.
A much better outcome than guided, right?
Right understanding.
Well, I think at some point we have.
A little better.
we grow as high as 10%, so it's a bit better. In terms of basis point on capital, I think it's still reasonable.
Next question.
The next question comes from John Peter Roger, analyst, HSBC.
Hello, John Peter. Yeah.
I think it's Kiri Vijayarajah, HSBC. I'm not sure who's name that we're going for. Anyway, a couple of questions from my side. Firstly, coming back to the next round of TLTRO in the summer, just wondering how much headroom you have left in terms of eligible collateral to expand your TLTRO usage beyond the current EUR 63 billion. Are you getting close to maxed out, or could you see that really moving the needle as we get into the back end of the year for the NII benefit there? Secondly, on retail fees, I appreciate lots of areas still pretty subdued, but just curious to see, are you seeing much uptick in single-stock trading by retail clients at the moment? Is that not really your target client base these days in thinking specifically kind of Boursorama? There's my two questions. Thank you.
Yeah. John Peter. First, William will answer the availability on the TLTRO, and perhaps Philippe can comment on Boursorama, it's on the retail side. We don't see the same frenzy that we see in the U.S. that we did on the retail order, but it was dynamic with Boursorama, and I guess it should be the case this year if the market feels are so positive, but we'll see. First, William, how many billions?
John Peter, it's very simple. We consider taking stock also of the change in the percentage of eligible liabilities that we have the room to add EUR 10 billion roughly to the EUR 63 billion as mentioned. Going to EUR 72 billion, EUR 73 billion in total, to which you would apply the bonification should the criteria be met.
Philippe on retail in Boursorama?
Yes. As you say, it was a pretty strong year on market activity with Boursorama. The impact of all of that is that we consolidated, and to a certain extent, we reconquer the position of number one in the online brokerage in France ahead of Bourse Direct. I can share some key numbers with you. For the full year, we increased the number of new securities account. It was 2.5x the level of 2019. Regarding the market orders for the full year, it was basically twice the volume of 2020. A very strong year. Overall, as was mentioned by Sébastien, for all the networks and financial fees were quite good. Strong momentum, which is still there. It is also a robust beginning of the year.
Thank you. Next question.
Thank you.
The next question comes from Giulia Miotto from Morgan Stanley. Madame, please go ahead.
Yes. Hi, good morning. A couple of questions from me. First, a clarification, actually. When you say that you are committed to positive operating jaws in 2021, is that on reported, so it includes restructuring costs, or is it on underlying? That's just a clarification. On the ongoing merger between Soc Gen and Crédit du Nord, I wonder whether you have an update how that is going, whether it has started, and any decision also on the brand, whether you're merging those or not. Finally, I'm just curious, you mentioned digital assets and you said that you see an opportunity there for Soc Gen. I was wondering what sort of opportunity do you see in this field? Thank you.
Yes. Hello, Giulia. I will turn the floor to William and then Sébastien will comment briefly on Forge.
Hello, Giulia. Thanks for your question because I realize that I may have not been clear enough. We steer the cost base of the company on an underlying basis. 16.5 is underlying. Lower than 16.5 by 2023 is underlying, and the slight increase refers to underlying combined with positive jaws, referring as well to underlying. On top of it, we will be as precise as we can over time pertaining to communication on restructuring charges. As I said, as you know, we think it's manageable. We have the capital to do so. We can offset a large portion of it. More fundamentally from a shareholder standpoint, let me repeat that the payout for the dividend calculation is based on underlying.
Sébastien?
Yes. Good morning, Justin and Giulia. A couple of points regarding this merger. First, we have nominated all the people working on the merger on a day-to-day basis with clear responsibilities. You know that for this kind of project, it's very important to have an organization well-designed to deal with all the different topics and the challenges. Second point, we have started the negotiation with the first round of part of the long process with the trade unions. The first part started last December and will end end of March. That's an important step in the process, followed by another round of negotiation, which will last until the end of 2021. Simultaneously, we are working hard on the IT migration preparation phase.
The last point, we have nominated a new management for one region of Société Générale's French retail and one new manager for French bank of Crédit du Nord by mixing the two cultures. Concretely speaking, some management from Société Générale has taken position within Crédit du Nord and inversely, in order to start promoting a common culture between the two brands. Regarding the brand strategy, nothing to share with you today because we are still working on this important point.
Briefly on Forge, which again, is an internal startup with people from Société Générale having developed a startup from this initiative. It's around crypto asset. I don't know how familiar you are with that, but let's say trying to build both a technical framework with a kind of blockchain technology, but also the legal framework, which is probably as important because you talk about something new as a category of asset and the definition of legal ownership, the definition of the instruments itself has to be adapted. It is trying to build an infrastructure which might be used for whether it's custody, asset management, bond issues, all the market activities, and with probably also potential development, but it's a little bit remote also on digital currency. It's kind of, if I may say, like an industrial corporate applied research and development.
I think it makes sense because it's one of the areas that we have identified as one of the promising areas for innovation. It will not change the revenue line for 2021, 2022. Let's also be very clear on that front. Next question.
The next question comes from Jacques-Henri Gaulard from Kepler Cheuvreux . Sir, please go ahead.
Yes. Good afternoon, gentlemen and Diony. Sorry, I have two questions. Interestingly, I was expecting a new strategic plan for the group this year. In a way, it's weird because we have everything, right? We have the numbers for the retail, we have the numbers to a large extent on GBM, or we'll have more detail at the first half of the year. We know what Basel IV is going to be, the platform and the framework is there. I was wondering what drove delaying that in detail, that's the first question. The second question is something which is still strange to me. We had the worst crisis since World War II. The cost of risk is really under control, and you've done extremely well there.
We understand how the support is basically working, but aren't we paving the way for a major sovereign crisis within the next three to four years? Thank you.
Hello, Jacques-Henri. First, let me just highlight, as you said, we are going to present the trajectory for a lot of our core businesses. Before, if I may say, complement the full picture on capital allocation, everything related to our ROT target, midterm. I would prefer to have more clarity on the economic environment. Actually, on the regulatory side, it's not so clear when and how Basel IV will be implemented. Probably, we will have a better feel for that in mid-year and beyond. Third, I'd like to have more clarity on the capacity to pay dividend. It's still 2021, a strange year with the supervisors. I think in order, before putting very precise figures, I would prefer to have more clarity.
Precisely as we give a lot to investors in the market, I think people can have a pretty good perspective on what we can achieve. Your second point, again, I think that [Yannick] could further complement. There's one thing which I would like to highlight, which for me is very important, because we tend to concentrate on where there is government support. We are French or British, and it's normal. What I like in what we've seen so far also, is that we have not seen a significant increase of the NPA in areas where you have no government support. If I may, in Africa, you did not have guaranteed loans like we had. I think we need here to consider that so far, at least, we have shown effectively the discipline in the credit origination and the quality of the portfolio.
As you said, of course, sovereign debt is increasing, not just in Europe in the U.S., massively. After this, it's difficult to say what the outcome of all this can be. You can have very different scenarios. I would say, I think it's not necessarily a short-term issue for 2021. Going forward, I'm of the, if I may say, religion, if I can say that, where effectively public finance at some point will have to be managed, and the trajectory to come back to discipline in terms of budget deficit. Everybody understands why governments are intervening. Let's face it's normal, it's necessary, it's useful. When we will be out of the woods, I think here, of course, more discipline will have to be there. Okay. I hope I've answered your question, Jacques-Henri.
Absolutely. Thank you very much, Frédéric.
Thank you. Guillaume.
Good afternoon.
Sorry?
Sorry, Guillaume, Hello?
Next question, yeah.
Yes. Clarification, please, on the impact of Basel IV. Is it net or gross of the fact that the Danish compromise goes from 370 to 250 risk weighting? My questions are, number 1 on the cost again. I know you steer the group with regard to underlying cost, but on a reported basis, am I wrong if I take your 16.5 underlying, then I add some of the non-recurring savings that you achieved in 2020? I add then a bit for organic and resolution fund, and then the EUR 500 million of Crédit du Nord, which takes me to about EUR 17.3 or EUR 17.4 billion. My second question relates to the capital theory. You want to be at all times 200 bps above your MDA. Will that also be the case after the countercyclical buffer is implemented?
In which case, that means you will operate at 12% also under Basel IV. On the corporate center, you used to give a guidance for pre-provision loss of EUR 500 million. What's the guidance at the moment, please? Thank you.
Guillaume, it's more than two questions than I hope that I've not made the list, but Guillaume will try to answer most of your question. First, let's clarify again on the cost and on the buffer, on the Basel calculation and the countercyclical buffer, which I hope to see, but I'm not sure we will see that so quickly given where we stand. Yes.
Okay. There are many questions, more than two, Guillaume. Effectively, the answer can be short on most of them. I'll start with capital. Yes, we do factor in the expected new weighting on insurance, as you can imagine, as far as Basel IV computation is concerned. By the same token, but I will not disclose any number at this stage, we also take some assumption with regards to IFRS 17 in the future. It's too early to say what it can be, but we are prudent people, and we know that at some point there could be some impact. With regards to the MDA. When we say it's 200 basis points above the regulatory threshold is what we think is palatable. It includes whichever is the level of regulatory requirement. As Frédéric said, we're not sure that we will see an increase in the contra-cyclical buffers anytime soon.
Anyway, the commitment is 200 basis points above regulatory requirement. Corporate Center is another one that is easy. We give three guidance. Cost of risk and capital, we don't give more guidance. There's too much uncertainty. Logically speaking, you would expect that there's nothing different from pre-crisis. What happened in 2020, it was some volatility, some of which has come back, some of which is still there and will come back in the future. Fundamentally, there's nothing very different in the Corporate Center than what you have seen, other than we could see in the future a decrease in liquidity cost and all that you know. On the cost, just to be very clear, because your addition is a bit scary to me. At least if that was going up to that level, I would be scared as a CFO.
When we say EUR 16.5 and a slight increase, this is a slight increase. I don't know where the numbers, maybe you can explain about Crédit du Nord comes from. As far as underlying is concerned. Restructuring. I guess it was the restructuring. Okay. It's ex-restructuring charge. Again, this is underlying. This is slight increase on underlying. Just to be specific, in our underlying cost, you have the tax, you have the contribution to SRF. We don't differentiate, it is part of it. We're just saying that this slight increase includes a potential increase in the SRF contribution. Okay. Is it clear for you, or do you want to go further? If I take EUR 16.5 of underlying, I grow it a bit, I add EUR 500 million of restructuring charge for Crédit du Nord, that alone takes me north of EUR 17 billion.
I just wanted to double-check that. The right computation, yes, is effectively underlying cost, a slight increase, including the SRF. On the side, you have restructuring charges, and as I said, they are not in the underlying because they are restructuring charges, exceptional in nature, and financed differently, and not billed to the shareholder, as I said. Okay. Thank you.
Thank you. Next question.
The next question comes from Matt Clark from Mediobanca. Sir, please go ahead.
Good afternoon. A couple of questions on asset quality, please. First one, could you give a bit more detail on why your Stage 2 loans went up so much in the fourth quarter, and you didn't really seem to take that much more in provisions against them. I mean, a bit more, but the coverage fell quite a bit. We've seen that trend elsewhere, but could you just explain for you why that was and why you didn't feel the need to put aside more in the way of Stage 2 provisions in the fourth quarter? The second question on cost of risk is about your guidance to be down year-over-year. Clearly, one of your major peers has guided a bit more specifically that it should return to the over the cycle level this year.
Is there any reason why yours couldn't do that, why it couldn't see a very meaningful improvement rather than just being down, which could be just a basis point better rather than 10 or 20 basis points better? Thank you.
Yeah. I will turn the floor to Jody, and as declared, we took a very prudent and conservative assumption in the fourth quarter to put all the so-called sensitive sector in the S2. Please, Diony, explain the rationale.
Yes, indeed. In Q4, we took a prudent approach. First, we updated our scenarios, and we have our multi-scenario approach, which weighs quite significantly the stress scenario at 15%, plus adding an extended health crisis scenario, which is a sensitivity to our central scenario in a way. The second thing we did also to prepare for the future was indeed to look at all exposed and vulnerable sectors. Either adding overlays when we saw that modeling didn't lead to the level of provision we believed made sense given the specific impact on certain sectors. Second, as Frédéric said, we moved to Stage 2 the exposures in vulnerable sectors which were originated before the crisis, considering that they have gone through a significant increase in credit risk, hence moving to Stage 2 .
All this has translated into indeed a significant provisioning on performing loans, Stage 1, Stage 2, which represents more than 15%, 15.3% of the total cost of risk of Q4. As far as our guidance is concerned, sorry, you wanted a follow-on question on this?
Can I just ask why the coverage of your Stage 2 came down so much then? Why was it that the new Stage 2 loans that you've, in the fourth quarter or towards the end of the year, need much less provisioning against them than your existing Stage 2 s?
I think in one of your slides, at one point.
Yeah. Matt, it is very simple, because we decided to include in the sectors with investment-grade names, which will never default. It was very conservative. For example, we put the oil sector, the BP, the Total of this world.
Very clear.
To try to make you understand how conservative we've been.
The average rating of our Stage 2 actually is higher, given the fact that we have moved to Stage 2 entire sectors, including high investment grade ones.
Very clear. Thank you. Sorry, I interrupted.
So-
Outlook.
Yeah.
Outlook for 2021.
We said below, indeed, 2020. I remind you that for 2020, we came below our guidance. We take the prudent approach again to reflect still uncertainty on the pandemic situation. Our scenario is based on the fact that we are not going back to 2019 levels before end of 2022, 2023. This leads, indeed, to, at this stage, quite a conservative assumption in terms of cost of risk, so below 2020, and progressively converging to normalized levels as the pandemic situation gets under control.
Thank you very much.
Next question.
The next question comes from Anke Reingen, RBC Capital Markets. Please go ahead.
Thank you. I just had one remaining question for me. On the buyback you talked about for the second half, I just wanted to understand how high the hurdle is for you to get a sign-off, if you can talk about it. I guess that would take you, in combination with the dividend, close to 100% of underlying EPS in 2020. I'm just trying to understand how important the payout ratio is relative to your current capital ratio, and your ability to say how likely that payout or the buyback in Q4 is. Thank you very much.
Hello, Anke. Really, I think you know it's just to have the global authorization to resume additional distribution. We talk about 14 basis points of capital, if you wish, versus the kind of quality one we have. Really, I don't see any hurdle or any particular problem with such amount, and given the quality one we have. Just that the SSM has to be happy for European banks to complement the distribution of the first half.
Okay, thank you. Yeah, I thought the profitability might play a role as well, but I understand.
Sorry, what?
I thought maybe the profitability would need to play a role as well in 2020, but I hear your comment on the capital ratio. I hear that comment. Thank you.
No, I don't think so.
Okay. Thank you.
Next question.
The next question comes from Flora Bocahut from Barclays. Madame, please go ahead.
Yes, thank you. Good afternoon. One last one from me as well. I'd like to ask you on the slide 28, where you provide your 2021 priority. When you say in the column on the creation of value for your shareholders, that you want to finalize the refinement of your business model, just wanted to ask if you could elaborate on what you have in mind in there. Obviously, I'm not asking you to give names on which activities you may keep or not, but just generally how you're thinking about it, what criteria are you considering to assess the ideal business mix that you want to target? The question goes both ways, in the sense that there are areas you may think about disposing, but then in terms of acquisitions also, where would you potentially be interested? Thank you.
Yeah, Flora, well, you're right. I think the idea is to say we need to finalize that. Of course, in particular in GBIS, on the 10th of May, we will explain where we want to perhaps allocate even more resources within the activity, and again, explain better why we think we can compete and where we want to compete. Beyond, as we have already done in the past, just review the portfolio and assess effectively if there are opportunities which can help us to improve the overall return of the group, consolidate further leadership position, and on the other hand, potentially dispose of businesses where we think we are not the best holder. Obviously, it's not for capital purposes, given where we stand, but optimization of the profitability.
Today, my major focus, whether it's on cost, whether it's on risk discipline, but of course, on optimization of capital allocation. I think we will try in 2021 to complement this picture that we have already started to elaborate upon with a few trajectory of certain businesses. We will work on this in 2021.
Thank you.
Next question.
We don't have any further question. Please go ahead for conclusion.
Well, listen, I think it was already a very comprehensive call. Let me just say again, we showed in the second half that the group is able to rebound, and I think the idea is to further show that in the coming quarters. Again, thank you for attending this call. Thank you very much. Bye-bye.
Ladies and gentlemen, thank you all for your participation. You may now disconnect.