Australia's four largest banks now have less reason not to pass in full to borrowers any future overnight cash rate cuts that the Reserve Bank of Australia (RBA) would make. It is because the latest yearly survey of the Bank for International Settlements have released Tuesday stated that ANZ, Commonwealth Bank, National Australia Bank and Westpac topped the list of profitable banks in the world.

The four had previously argued that they need to pocket some of the RBA rate cuts because their funding cost sourced from overseas is higher, caused by the ongoing eurozone debt crisis.

Australian banks, particularly the big four, enjoyed pre-tax profits that were equivalent to 1.19 per cent of their total assets in 2011. The second most profitable banks were those in Canada - which like Aussie banks were not affected by the 2008 global financial crisis - but had a lower pre-tax profits of 1 per cent of total assets. Third placer was American banks that had 0.9 per cent pre-tax profits.

Nicholas Hossack, acting chief of the Australian Bankers Association, explained the apparent lucrative operations of local banks to different global taxation rates which boosted perceived profit levels of Australian banks.

Brian Johnson, banking analyst of CLSA, said lesser competition, which allows the lenders to pass on costs for structural rises straight to borrowers, is also another reason behind the higher profitability of Aussie lenders.

The report covered 50 per cent of 55 major global banks.

While the big four ranked high in profitability, their satisfaction ratings are on a downward trajectory, according to another report released on Monday. The worst hit was ANZ Bank which logged a 6.8 out of 10 satisfaction rating from banking clients.

Experts explained the declining satisfaction rating to the decision of the big four to break away from the RBA interest rate policy.

While top Australian banks are enjoying profitable operations, 28 Spanish banks were downgraded on Monday by Moody's Investor Service due to their holding a substantial amount of Spain's sovereign debt and real estate loans that are souring.

Among the Spanish banks downgraded were the country's largest lenders such as Banco Santander and Banco Bilbao Vizcaya Argentaria.

Besides the sovereign debt holdings downgrade, Moody's also made a three-step reduction in the credit grade of Spain to Baa3 from A3 due to the weakening economy and limited access to capital markets.

The downgrade of the 28 Spanish banks is on top of a first round of downgrades that Moody's made on 16 Spanish banks on May 17.