Research house Morningstar has assigned 'Hold' ratings to all three of the country's regional banks, arguing in a new report on the sector that Bendigo and Adelaide Bank, Suncorp and Bank of Queensland have benefited from cyclical changes in the market over the past couple of years but are not capable of making structural changes to their businesses that would produce sustainable high returns."While the regionals can slog away and make a profit, their strong competitors make it difficult for them to consistently generate adequate returns on capital," Morningstar said.It said improved regional bank profits over the past couple of years were not evidence of durable competitive advantage. "They are benefiting from cyclical not structural changes. The funding cost difference [between the regionals and the big banks] is shrinking but their smaller scale leaves them lagging when it comes to building a competitive position through cost advantage."The regionals lack sufficient pricing power or large enough customer bases to protect profits and generate sustainable returns that substantially exceed their cost of capital."The big banks have "sticky" customer bases, Morningstar said. Customers do not see much to be gained from switching, and this allows the big banks charge a small premium for their loans and offer lower deposit rates.The average big bank interest margin is around 2.1 per cent, compared with 1.8 per cent for the regionals.During the past five years, Bank of Queensland produced an average return on equity of seven per cent; Bendigo and Adelaide Bank's was 7.8 per cent.In the depths of the financial crisis regional banks were trading at price-to-book ratios of 0.65 to 0.7 times book value. With share price rises of between 60 per cent and 80 per cent over the past couple of years, the price-to-book ratios are now between 1.2 and 1.6 times."They are now trading in line with historical price-to-book value and we believe the buying opportunity has come and gone," Morningstar said."All are now fairly valued, trading at forward price-to-earnings ratios between 11 and 12 times, and dividend yields of between 5.5 and 6.5 per cent."Morningstar said one way for the regionals to grow was to acquire business, and Bendigo and Adelaide Bank and Bank of Queensland have been active in the M&A market. However, "acquisitions have failed to deliver improved returns to shareholders".