frontloading three - year or lifetime losses in domestic and foreign banking books. ex - post performance apparently indicated our projected losses did not differ much from actual reported credit losses in subsequent years. european banks in general and greek banks in particular, are currently preparing for their transition to the new framework. there are no grounds for anticipating any delays in these preparations. domestic banks in particular have accumulated significant experience towards these goals. moreover, it is worth noting that the largest part of their credit exposures has been tested according to ifrs 9 - equivalent methodology. this can be seen as one of the benefits of having an asset quality review exclusively designed for greek banks like the one completed in 2015. in any case, we should all be in a better position to evaluate the medium - term impact of ifrs 9 implementation soon, as the ssm will complete a full review on that matter, ahead of the 2018 stress tests and the methodology supporting that exercise. finally, allow me to add a few remarks about issues associated with the cooperation between banking and audit regulation, as well as the issue of mandatory auditor rotation. i believe that, so far, the debate over mandatory auditor rotation has mainly consisted of two competing arguments. on the one hand, proponents of mandatory rotation are concerned about the risks that long - term auditor - client relationships pose to the auditor ’ s mindset. by limiting that relationship, rotation would improve audit quality by helping ensure that auditors remain professionally skeptical and do not become overly trusting of their clients ’ assertions. that is more or less the key idea behind requirements stated in the memorandum of understanding ( mou ), as agreed last year, and it is incorporated within a number of changes in the corporate governance structure of greek banks. on the other hand, it is more or less obvious that the know - how acquired by an auditor concerning the specific business, financial and operational aspects of a company would be lost with each rotation. banks should hence support external auditors in understanding all key issues as soon as possible. european banks in general, and greek banks in particular, are increasingly reflecting upon a series of key challenges for banking and audit regulators alike. the growth and diversity of nonperforming exposures across europe, the width and complexity of derivative products and the rapid differentiation of shadow banking instruments and markets, present key risks for regulators in view of major changes in banks ’ business models. the recent financial crisis not only exposed weaknesses in banks ’ risk management, control and governance processes, but also highlighted

finance the real economy. the protracted recession, coupled with austerity measures, resulted in a significant increase of non - performing loans and impairment, thus undermining profitability. as a result, the banking system began to experience losses from the first quarter of 2010, and their capital base started to erode. despite efforts to support operating profitability, the high level of loan - loss provisions resulted in successive negative results until the end of 2015. moreover, due to the unfavourable macroeconomic environment, there has been a significant credit contraction since the end of 2010. the cumulative reduction of the outstanding credit to the private sector was about €54bn ( or more than 20 % ) during the period december 2010 – december 2015. the demand for credit by both enterprises and households has dropped, due to the increased business risk and households ’ uncertainty about their future finances and debt servicing capacity. in addition, the imposition of capital controls in late june 2015 has hampered economic activity. the effects seem to have been less severe than initially anticipated, due to a positive contribution of net exports and a lower - than - expected decline in consumer spending. however, substantial adverse effects have been observed in the business environment. against this backdrop, the bank of greece has taken prompt and effective action to safeguard financial stability. the banking sector has undergone a profound restructuring through consolidation and recapitalisation, enabling it to withstand the crisis and the flight of deposits. as a result, it now has adequate capital, loan loss provisions and collateral. hence, the necessary ( though not sufficient ) conditions are in place for the banking sector to address the major challenge posed by the high stock of non - performing loans. the authorities ’ response to tackling non - performing loans is based on three pillars : first, enhancement of the supervisory framework for the management of non - performing loans ( npls ). the bank of greece, in cooperation with the ecb ’ s banking supervision ( ssm ), has issued supervisory guidelines for the internal management of npls and has recently agreed on npe operational targets with banks for the period q3 2016 – december 2019, entailing a reduction of npes by 38 %. the bank of greece monitors on a quarterly basis the implementation of npe targets and related key performance indicators through an enhanced prudential reporting framework. moreover, the bank of greece has issued a code 2 / 5 bis central bankers'speeches of conduct governing the relations between credit institutions and borrowers in ar