Comment: Credit growth taxes banks

Periods of lacklustre credit growth often morph into strife in banking, and it's interesting to observe this playing out in the form of lower margins across Australia's dominant banks.

The margin squeeze disclosed over the recent profit season ranged from the modest (a fall of two basis points for National Australia Bank) to as much as eleven bps in the case of ANZ.

NAB's Australian Banking NIM is a very low 1.6 per cent, compared with the group's NIM of 1.92 per cent.

This fall is a function of a quest for volume growth and the improbable goal of above system growth for most major suppliers.

Story lines of 1.3 times system growth (for NAB) and for sequential years can only be a pointer to a softening of standards around the system.

The concentration on sales growth in the domestic markets of Australia and New Zealand for most of the majors may suggest a period of strategic clarity for the sector.

But they can't all break out - an accolade, for now, that can still only be directed at Commonwealth Bank, which earned a return on equity of 18.6 per cent in the December 2014 half.

Westpac trails on this ROE reckoning by 180 bps with NAB and ANZ a further 110 bps off the pace.

The eagerness of the managers of all three stragglers to follow the leader seems sure to tax margins for some time yet.