One point that needs to be absolutely clear is that the business model that prevailed before the crisis – based on the expansion of credit sustained by large-scale cheap wholesale funding – is no longer viable. The financial landscape that will emerge once the dust finally settles will demand less leveraged and more strongly capitalised business models in banking.
This paradigm shift is underway and is embedded in the international initiatives for regulatory reform. In this setting, Portuguese banks will need to face two key challenges, which are hurting efficiency levels:   A lower transformation ratio;    And narrower margins, reflecting the combined effect of a large share of mortgage credit contracted at very low spreads and more expensive funding.