The relief rally in major bank shares sparked by "benign" capital requirements may have further to run, analysts say, after a long-term source of uncertainty in banking has been removed.

Stockbroking analysts delivered their verdicts on Thursday about the much-anticipated decision on what banks must do to be "unquestionably strong," from the Australian Prudential Regulation Authority. Their tone was upbeat, as bank shares stage a comeback from slump of recent months.

UBS analyst Jonathan Mott said APRA's ruling was a "big win" for banks, questioning if the regulator had "gone light" on the lenders.

"We have not seen so many smiles on the faces of Australian bankers in many years," he said. "Any way we cut it, we view this as a big win for the banks".

"If anything, APRA appears to have gone light on the banks."

It came as bank shares posted another solid rise after a $14 billion surge on Wednesday. By late morning on Thursday, ANZ Bank was up 2.5 per cent, Westpac has lifted 1.9 per cent, National Australia Bank rose 1.6 per cent, and Commonwealth Bank increased 0.8 per cent.

Shares in ANZ Bank, which has the strongest capital position of the big four, traded at levels last seen before news of the federal government's bank tax leaked on Tuesday May 9, spooking the market and contributing to a $50 billion slump in banks' sharemarket values during the month.

APRA on Wednesday said the big four banks would have until 2020 to increase their levels of top-tier capital, by about 1 percentage point, to 10.5 per cent. Capital is a critical loss-absorbing buffer for banks.

Mr Mott, who had predicted APRA would take a tougher line, noted other positive news for the banks in recent weeks, with the South Australian government's bank tax also likely to be blocked in the upper house, and banks targeting property investors with recent interest rate hikes.

"As a result we would not be surprised to see the near-term relief rally in the major banks continue," he said.

Despite this, Mr Mott said the medium-term outlook for banks was still "very challenged." He has an "underweight" position on the sector.

Credit Suisse analyst Jarrod Martin, one of the more bullish before APRA's announcement on Wednesday, released a note titled "Capital bears are unquestionably wrong."

We have not seen so many smiles on the faces of Australian bankers in many years. Any way we cut it, we view this as a big win for the banks.

UBS analyst Jonathan Mott

Mr Martin said APRA's decision was a "benign outcome" for banks and lenders may build up the capital they need to hit APRA's target through retained earnings more quickly than expected. This could open the door to some banks buying back new shares issued under their dividend reinvestment plans.

Morgan Stanley's Richard Wiles said the strength of the banks' resilient profits should "support share prices in the near term," despite headwinds to profits re-appearing next year.

Goldman Sachs analyst Andrew Lyons said APRA's target was "very manageable" for banks, also noting headwinds facing the sector were "dissipating."

On top of last month's hikes in mortgage rates, the recent rise in market expectations of a lift in official interest rates from record lows is also good news for lenders, as rising interest rates tend to widen banks' profit margins.

Macquarie's Victor German said he expected "near-term relative upside risk" in banks, after the risk of tougher capital requirements was removed.