Australian banks still overpriced, says Goldman Sachs Australian banks will continue to benefit from low bad debts and a recovery in credit growth over 2014, Goldman Sachs analysts have predicted. But after the sector's blockbuster share price increases of last year, the investment bank says the valuations of most of the big four banks remain ""stretched"." With a housing market recovery tipped to drive stronger borrowing in 2014, Goldman analysts led by Andrew Lyons on Friday forecast 6.4 per cent growth in Australian bank cash profits for 2014. The investment bank also upgraded its rating for Westpac from ""hold"" to ""neutral,"" citing the potential for higher margins due to lower costs from term deposits. Despite this, the report also said most of the sector appeared to be overpriced, after the ASX 200 bank index surged 22 per cent in the past year. Figures compiled by Bloomberg also show the share prices of the Commonwealth, Westpac, NAB and ANZ were at their most expensive since before the global financial crisis. Bloomberg said the the banks traded at 2.1 times the net vale of their assets - the highest since 2007 and 75 per cent more than the MSCI World Bank Index. Decline in competition Aside from further growth in credit demand, the Goldman analysts" report said banks were benefiting from a decline in competition for term deposits, and this was likely to support the sector's profit margins in the first half of the year. ""The Goldman Sachs Australian Margin Barometer continues to highlight further upside risk to our already raised margin forecasts, driven by alleviating deposit competition,"" the report said. Even though many households are paying down their debts ahead of schedule, the report also said mortgage credit growth would increase to a peak of 7.4 per cent in March, in response to continuing house price growth this year. Bad debts - which are at the lowest level in years and helped to bolster the big four's cash earnings to $27.4 billion in 2013 - should not ""deterioirate greatly,"" the analysts said. Business banking Although rising unemployment was likely to drag on asset quality in retail lending, it said business borrowers were generally in good financial health. ""Corporate balance sheets remain in excellent shape compared to five years ago and the easing Australian Dollar should help retail, manufacturing and tourism, which were all industries highlighted by the banks as being under pressure in 2013,"" the report said.