THE rule of thumb is it is better to be an investor in banks than a depositor but even after a year of record profits that's still not enough to have shareholders flocking to the sector.
Banks are still feeling the hangover of the financial crisis and they are finding that more than ever, profit growth is hard to come by.
After more than a decade of booming credit growth, households have been undergoing a period of paying down debt over the past three years and this means revenue growth is being crimped.
Indeed, figures released last week by the Reserve Bank show lending growth across Australia is hovering at more than three-decade lows.
This structural shift to a low credit-growth environment is likely to have some way to play out, with analysts tipping at least another two years.
The rise in funding costs is also playing havoc with the other side of the earnings equation - that is, banks having to pay more to raise deposits or borrow funds from wholesale markets.
Problems in Europe's debt-heavy economies have meant banks are again facing a substantial rise in wholesale funding costs. There is only so much capacity for them to pass on the higher costs to borrowers, with competition still paying a big part in loan pricing.
While earnings growth is likely to be modest, Australian banks are still well liked by investors for their healthy dividend stream. Even during tough times, banks are often loathe to cut payouts.
For investors, the big four banks can broadly be broken down into different propositions.
Commonwealth Bank and Westpac are essentially a play on the nation's mortgage market. So demand for housing loans will be a big driver of profits. Both have strong wealth-management franchises, giving them additional leverage to recovering equity markets. However, CBA has invested a lot more in technology, giving it a more efficient operating base over its rival.
National Australia Bank remains tight on cost control and has the biggest exposure to small- to mid-sized business lending, but uncertainty remains over its British business.
ANZ is most geared to institutional lending, namely big business. ANZ is also building its Asian businesses but returns to investors from this are still some way off.
A Royal Bank of Scotland analyst, Andrew Lyons, describes the big four banks as "fairly priced" for low earnings growth.
A Citigroup analyst, Craig Williams, says for a re-rating in bank shares the sector will first need to experience some higher credit growth as well as a lessening of global bank risk.
In terms of rankings, Goldman Sachs analyst Ben Koo's preference is for the smaller end of the big four, namely National Australia Bank and ANZ. Then he rates Westpac followed by CBA.
This broadly matches the pecking order among most analysts tracked by Bloomberg.
Both ANZ and NAB have the most buy recommendations; Westpac has the most ''hold'' recommendations, CBA is also generally rated as hold, although several analysts have slapped a "sell" rating on the stock given its high price.
From a valuation perspective, CBA is trading on a financial 2012 price-to-earnings ratio of 12 times, a premium to its rivals, which are clustered around PE ratios of nine to 10 times. The high relative share price means CBA offers the lowest dividend yield of the banks at only 6.3 per cent.
NAB and ANZ, which missed much of the share price gains in a period following the financial crisis, are offering better value, Koo says.
Victor German, of Nomura, has a neutral rating on the sector but picks Westpac and NAB as the best of the bunch.
''While we continue to see banks as attractive long-term investments based on absolute valuations, banks no longer look as compelling on a relative basis given recent out-performance,'' he said.
