Malaysian banking sector faces risk of further correction

The 25 basis point increase in the Overnight Policy Rate (OPR) will benefit fixed deposit (FD) savers after the real rate of return on deposits will return to positive in 2018.

PETALING JAYA: Despite a recent decline, the valuation for the local banking sector has yet to reach its record low level, indicating that there could be risk of further correction.

In its analysis, Affin Hwang Capital Research noted that the banking sector was now trading at an estimated 1.3 times price-to-book-value (P/BV) and 12 times price-to-earnings (P/E) on a one-year forward basis. This compared with the sector’s all-time low of 1.13 times P/BV and 8.9 times P/E in 2009.