Global ratings agency Fitch Ratings expects Australian banks' earnings to slide during the second half of fiscal 2009 as impaired assets rise and a recession in Australia sets in.

Fitch is forecasting a 0.8 per cent contraction for Australia's gross domestic product (GDP) in 2009 as consumer spending slows for the first time in 47 years and bank lending continues to contract.

The local credit crunch has seen double-digit loan contractions for owner-occupied investment, housing and commercial transactions since last June.

WHEN the Bank of Queensland appointed corporate advisers in December to review acquisitions, strategic partnerships, mergers and possible takeover offers, it sent a clear message that any rival outside the Big Four banks needed a new set of tricks to compete.

Bank of Queensland chief executive David Liddy told shareholders: "To compete with the big banks, smaller banks such as BoQ, as well as credit unions and building societies, have been merging and will continue to do so."

Two weeks later, on December 24, Wizard Home Loans was sold to Commonwealth Bank and Aussie Home Loans for $26million. The remaining non-bank lenders, Resi Mortgage Corp, First Mac, Pepper Home Loans, Better Choice Home Loans, Beat Home Loans and a few others are expected to either close down or merge as credit conditions worsen.