retail banking sector, a prerequisite for competitive and effective banking services. broadly, the recovery in the sector is continuing as banks continue to repair their balance sheets. the sustainability of bank business models, however, remains the main strategic risk for some institutions and a focus of supervisory work. balance sheets continued to decline during the first half of 2017 and cost challenges remain a significant concern for bank operating models. yields on the bonds issued by irish banks have declined but remain at elevated levels compared with eu peers. at end - june 2017, the non - performing loans ( npls ) of irish retail banks stood at €35. 8 billion, equivalent to an npl ratio of 16. 1 percent. npls, however, have declined for fourteen consecutive quarters, representing a 58 percent reduction from the q4 2013 peak, or a decrease of €50 billion in gross exposures. looking ahead, more npl reductions are expected through further restructuring, recoveries, and loan portfolio disposals. from a policy perspective, the recently published ssm public consultation for the minimum level of prudential provisions for npls is an example of the european - wide action in this critical area. put simply, where new npls arise in the future, banks will have to provision fully for them over a set period, subject to a comply - or - explain mechanism. npls cause considerable distress for borrowers but also require strategies from banks to manage these with their borrowers. our focus remains the execution of an effective and sustainable npl reduction strategy for each bank that ensures fair treatment of consumers and sme borrowers. the code of conduct for mortgage arrears ( ccma ) sets out how lenders must treat borrowers in ( or facing ) mortgage arrears, with the objective at all times of providing sustainable solutions that assist the borrower to meet mortgage obligations. the number of mortgage accounts for principal dwelling houses ( pdh ) in arrears fell further in the second quarter of 2017, the sixteenth consecutive quarter of decline. the number of pdh mortgage accounts classified as restructured at end - june was 120, 398. of these restructured accounts, 87 per cent were deemed to be meeting the terms of their current restructure arrangement. similarly, regulations on sme lending have been strengthened to provide greater protections to firms in financial difficulties. concerns have arisen about sales of loans to international funds and non - banking entities. it is important to recognise that the ccma applies to the

to other european economies. from a macroeconomic perspective, the weaker sterling exchange rate has affected the consumer price level in ireland, reflecting the heavy concentration of uk - sourced goods in the goods component of the irish consumption basket. since the brexit vote, the value of the euro has risen by almost 17 per cent against sterling, and sterling weakness has mapped into a substantial downward shift in the prices of consumer goods in ireland. while sterling depreciation also adversely affects the earnings of exporters to the uk, export volumes to the uk remain robust, including for the food sector. brexit : regulated firms ensuring that all firms with uk exposures are planning effectively for brexit risk remains a key continuing focus for the central bank. in this regard, it is important to note that we are now just 18 months away from the end of the article 50 period. we expect regulated financial firms with uk - related business to have well - developed plans in place for dealing with all possible outcomes, including the risks of a hard brexit. this should include a clear focus on any implications for their customers and clients. the relocation of the eu activities of uk - based firms continues to be a focus for the central bank and we are committed to providing transparent, consistent and predictable regulatory decisions. the importance of european regulatory convergence in handling brexit means that the central bank has been proactively engaged in the work of the european authorities via the european system of financial supervision. the ecb, esma, eiopa and the eba have all issued important guidance or opinions. this is consistent with our overall approach of operating in line with, and influencing, european standards. as i have said before, the brexit - driven relocation decisions of firms should not be driven by regulatory differences but by non - regulatory factors which differ across the various candidate locations. update on the banking sector in relation to the banking sector, we observe no brexit - related deterioration in asset quality 5 / 8 bis central bankers'speeches among the irish retail banks now prudentially supervised by the ssm of the ecb. these institutions have made satisfactory progress with respect to assessing their exposures and have implemented processes within their frameworks to ensure that brexit - related risks are factored into assessments and inform decisions. a well - functioning banking system is important to ensure it can support the economy, consumers and businesses. the continuing growth of the economy has provided a positive operating environment for the irish