Bank earnings per share for the current financial year have been revised down by as much as 12.5 per cent in a report issued by Macquarie Securities.In an extensive report on the sector, Macquarie said increases in bad and doubtful debts, slower housing finance growth, lending competition and higher funding costs would all act as drags on bank profits. Macquarie has revised its expected earnings per share for ANZ by 0.3 per cent, Commonwealth Bank's by 4.3 per cent, National Australia Bank's by 12.5 per cent and Westpac's by 3.6 per cent.Among the smaller banks, Macquarie has revised down Bendigo and Adelaide Bank's EPS by 7.4 per cent and Bank of Queensland's by 1.9 per cent.Macquarie said NAB's dividend would be difficult to sustain and there was some risk that ANZ's dividend would also fall. It said CBA and Westpac had sustainable dividend levels.On the positive side, banks were able to re-price their mortgage books last year and will probably do so again this year"We expect banks to further re-price their mortgage books by ten to 15 basis points - the key upside to margins," Macquarie said.Margins would improve by five to six bps if mortgages were re-priced again this year.Another positive is that banks are unlikely to have to raise more capital this year.However, these "margin drivers" will be outweighed by the negatives - the chief of which is a likely increase in bad and doubtful debt charges.Macquarie said credit quality would deteriorate in non-housing loan portfolios, especially those exposed to commodity price falls. The big banks each have A$15 billion to $20 billion of loans to the resources sector. "This is a small parts of their total books but losses are likely to be material," Macquarie said.Bad and doubtful debt charges on non-housing loans were an average of 41 bps last year - well below the cycle average of 75 bps. Macquarie said: "Normalisation to mid-cycle levels would take about five per cent off the [big] banks' earnings. However, we don't expect BDD charges to revert to mid-cycle levels in the next two years."It said credit quality would hold up in other parts of their businesses, given low interest rates, reasonable levels of business and household gearing.On mortgage rates, Macquarie said that since the start of the financial crisis, banks have been able to increase mortgage spreads by 185 bps for owner-occupied mortgages and by 210 bps for investor loans.However, competition for new lending has intensified and the discount rate of an SVR loan is around 80 bps. Competitive pressure on the "front book" will take around two bps off margins.Housing credit growth has been underpinned by strong demand from investors, the buoyant property market and robust turnover rates. Those trends appear to be unwinding, suggesting that housing credit growth is likely to moderate this financial year and beyond."While demand for new credit is likely to fall, repayment rates should remain at elevated levels in an environment of low interest rates," Macquarie said.This article has been updated so