The March 2012 quarter may have been a dourer period for the banking industry in Australia than was previously realised.Aggregate data published by the Australian Prudential Regulation Authority shows industry profits were lower than in all but two quarters since the credit shock first hurt sector earnings five years ago.The return on equity over the quarter was 11.0 per cent, compared with an average ROE in the four prior quarters of 15.0 per cent.The return on assets over the March quarter was 0.6 per cent, compared with an average ROA over the four previous quarters of 0.9 per cent.The overall industry profit for the quarter, of A$5.008 billion, was the lowest since the March 2010 quarter. On the other hand, the banking industry did not earn profits in excess of $5 billion during any quarter during the long boom.The half-year loss for Bank of Queensland during the March quarter was one factor that pulled down the industry average.The wider cause may be the fall in interest margins during the quarter, as banks dithered over repricing loans to offset rising funding costs.Other drivers include a pick up in operating costs (which may have been artificially low during 2011) and lower non-interest income.The decline in profits is evident across the four industry sectors on which APRA reports - major banks, other domestic banks, foreign subsidiary banks and foreign branch banks. Foreign bank profits declined the least over the quarter.