Additionally, with the Federal election 12 to 18 months away further increases in the Federal Bank Levy cannot be ruled out, especially if the Australian Budget remains under pressure."

Morgan Stanley analyst Richard Wiles said the South Australian levy will save 0.2 per cent off the banks' earnings but the hit could be bigger if other states were to follow.

"Hypothetically, if other states adopted a similar policy, we estimate an impact of around 0.5 per cent apiece for Western Australia and Queensland and closer to about 1 per cent apiece for Victoria and New South Wales," he said in a note to clients.

"We'd say the states with stronger fiscal positions are less likely to adopt this policy."

Macquarie analysts agreed the hit to the banks would be small, but said the Federal Government's 6 basis point levy could be effectively doubled if all states followed South Australia.

The analysts also said the South Australian levy was more proof that the political environment is "as an ongoing drag on sentiment for Australian banks and the market. This uncertainty is likely to result in share-price pressures and higher cost of capital for Australian corporates."

Shares in ANZ have fallen 9 per cent so far this year, while Westpac is down 7.2 per cent, NAB has fallen 4.3 per cent and CBA is down 0.9 per cent.

But Mr Mott said the outlook for the stocks was negative.

"The Australian banks remain strong, profitable, well run organisations, with the recent share price pullback removing much of the extreme valuation stretch. However, on 13.2 times price to earnings and 1.8 times book value the banking sector is not cheap.

"We remain cautious on the outlook for the banks given the myriad of headwinds. We struggle to see what will drive bank share prices sustainably higher."