non - residents ’ deposits. households have been adjusting their portfolios in a context of growing risk aversion and higher relative remuneration of deposits. even if a slowdown of deposits is to be expected, their resilience is a clear indication of the public ’ s trust in the domestic banking system. credit granted by resident banks is declining, partially reflecting the deleveraging of the private sector. the composition of loans granted to non - financial corporations raises concerns. indeed, the decline in loans is concentrated in the segment of small and mediumsized enterprises. in contrast, loans to both state - owned enterprises and to the largest private sector corporations have been increasing, as these corporations are replacing credit previously obtained abroad with loans taken from portugal - based institutions. looking forward, it is crucial that, as deleveraging proceeds, banks continue to provide an adequate level of financing to the most productive sectors and firms in the economy. banks ’ deleveraging strategies should therefore continue to focus on the sale of non - strategic assets as well the sale of credit ; an increased use of stable sources of financing ; and the reinforcement of capital. it is also critical to meet the fiscal consolidation targets and successfully restructure the state - owned enterprises sector to avoid crowding - out credit to the productive sector. of course, it is not all good news. as expected, the unfavourable economic and financial environment has taken a toll on banks ’ profitability. however, the negative results announced for 2011 should be examined closely, to disentangle current results and one - off factors. indeed, results in 2011 were significantly affected by non - recurrent factors such as the impact on banks ’ balance sheets of the transfer of pension funds to social security and the corrections arising from the special on - site inspections programme. these “ one - off ” effects penalised results in 2011, but imply more robust balance sheets going forward. if we put aside these one - off effects, we see that banks ’ profitability remained positive even if at low level. iv. concluding remarks let me conclude by reiterating that portuguese banks are now more capitalised, more transparent and less leveraged than a year ago. monitoring and supervision were significantly enhanced and the regulatory environment is much improved. the financial assistance programme ’ s financial stability measures and targets are well on track. this said, the challenge remains huge and there is no room for complacency. combining mounting capital needs with deleveraging requirements, while

are aiming in part to shift the composition of the portfolios of long - term investment institutions. and it was encouraging, therefore, that the money holdings of non - bank financial institutions expanded recently. some economists argue that gilts and central bank money are near perfect substitutes, so that the effect of our quantitative easing will be negligible. they may well be close substitutes for traders. but i doubt they are perfect substitutes for insurance companies and pension funds, many of which probably don ’ t participate in the secured deposit “ repo ” markets for switching gilts into cash ; and which in any case desire assets with a longer “ interest - rate duration ” than money. if so, holding zero - yielding money balances will not suit them, and we could reasonably hope for increased demand for, perhaps, corporate bonds and other financial assets. risk premia might decline slightly. and the flow of credit outside the banking system may improve, helping to support a recovery in nominal demand. over the next quarter or so, amongst other indicators i will therefore be looking at what happens to firm and household money holdings, as well as credit flows and risk premia. the bank ’ s asset purchase facility schemes for corporate paper are designed to help catalyse that process. the fact that the bank is buying relatively small amounts of paper may have been misunderstood by some. as the central bank, we are not operating the schemes in order to lend in scale to the real economy, but rather to help revive the markets. some have described this variant of liquidity insurance as acting as “ market maker of last resort ”, and i recently aired some thoughts on the kind of principles that might guide central banks in this area. 1 they include consistency with monetary policy ; avoiding undue risk to the central bank ; acting as a catalyst ; and avoiding attempts to prop up markets that would not be fundamentally viable once peacetime resumes. yesterday, the bank issued for consultation some ideas on how we might be able to extend our liquidity insurance, through the apf, to facilities for working capital finance. they cover a possible facility for secured commercial paper, where the underlying assets would be portfolios of sme trade - finance credit, and a facility for supply chain finance. i would hope that the insurance industry, and the liquidity and investment funds you run, might be investors in such paper, whose liquidity would receive some underpinning. certainly you will for example, see buiter w ( 2009 ), “