and report any changes in the terms of a loan triggered by financial difficulties of the borrower. • the adoption of measures to increase the robustness of credit institutions ’ governance models ( in particular related to internal controls and remuneration policies ). main challenges ahead these developments are encouraging and show that significant progress has already been achieved. i have no doubt that we are now much better equipped to deal with emerging financial strains then we were at the outset of the current financial crisis. nevertheless, there are still major domestic and external challenges facing the future evolution of the portuguese banking system. domestically the main challenge to the banking system is profitability. as you know, the banks ’ profitability has been under great pressure. the roa declined from 0. 48 % in december 2010 to – 0. 55 % in june 2013. in the same period, the roe declined from 6. 7 % to – 7. 19 %. this is due to a variety of factors. firstly, default in the credit portfolio has been increasing due inter alia to the prolonged economic recession, even though the flow of new defaults has been declining, consistent with the signs of recovery in the real economy. the decline of npl was accompanied by an increase in impairments and as a consequence the npl coverage remained relatively stable throughout the period. secondly, net interest income has narrowed ( from 1. 5 % in december 2010 to 1. 05 % in june 2013 ) due to various causes, of which i would like to stress the following five : • the low level of short - term interest rates, which reduces spreads on demand deposits. of course this also means that the return to normal interest rates values bis central bankers ’ speeches will contribute to the improvement of the net interest income of the portuguese banks. • high financing costs related to the increase in the deposit base and the costs of hybrid instruments ; • decreasing activity in the credit market ; • increasing defaults in the credit portfolio ; • the low profitability of the mortgage credit granted in the past. thirdly, despite the adjustment achieved to - date, banks currently bear operating costs that are out of step with the “ new normal ”, in which the economy will be less leveraged than before the financial crisis. this low profitability, coupled with the increasing application of basel iii rules, will continue to force institutions to manage their capital levels with particular care and pro - activity. to respond to these challenges, the institutions must take action on various fronts : • on the

need to reinforce the value of impairments by €861 million, around 2. 2 % of the overall amount of exposures assessed. in 2013, banco de portugal ran a new exercise focused on credit portfolio impairment assessment and on the fair value calculation of the participation units held in restructuring funds. it was directed to credit granted by banks to all segments, with the exception of mortgage and consumer credit ( which are assessed by collective impairment models ) and of credit to public sector entities. the credit portfolio assessed amounted to €93 billion, bis central bankers ’ speeches representing 23 % of total assets. as a result of the exercise, it was considered necessary a reinforcement of €1. 1 billion of the value of impairments, approximately 2. 1 % of the overall amount of exposures assessed. in all exercises, the valuation of the credit portfolio was performed by independent external auditing firms ( ernst & young audit & associados – sociedade de revisores oficiais de contas, s. a. and pricewaterhousecoopers & associados – sroc, lda ) without any relation with the inspected institution. moreover, a strict governance structure was defined to monitor the exercises. a steering committee was created, chaired by the banco de portugal and comprising experts appointed by the ec, ecb and imf, by three euro area supervisory authorities ( banco de espana, national bank of belgium, banque de france / acp ) and by banco de portugal. it goes without saying that all these exercises have been subject to close scrutiny by the troika. it is also worth mentioning that the asset quality review of european banks recently announced by the ecb will follow the same type of approach that we have followed in our horizontal inspections. other instruments worth mentioning include : • the adoption of a new, more stringent, non - performing loans ( npl ) ratio, based on international best practice. it is more comprehensive than the concept used previously, as it incorporates the possibility of debtors with payments in arrears continuing to fail to meet their credit commitments. it is in line with the npl definition used by the imf, reinforcing the comparability and transparency of information on credit quality. the new non - performing loans concept is more conservative than the european average ( collateral is not deducted from the npl ratio ). • the adoption of measures to discourage evergreening. in particular, banco de portugal required banks to earmark