Module II· Multiples & Sector SpecificsAdvanced
Question
How do bank multiples shift across different rate environments?
Answer
Mechanics
Bank multiples react strongly to the rate environment:
- Low rates (2014–2021): multiples depressed. NIM falls, CoE high. P/B for the sector 0.4–0.7x; the weakest names 0.2–0.4x.
- Rate turn (2022–2024): multiples rally. Net interest margin expands, ROE rises — P/B re-rates to 0.7–1.2x.
- High rates (steady state 4%+): P/B 0.9–1.3x. Solid ROEs (around 12%) justify a slight premium to book value.
Credit-cycle complication
In recessions, loan-loss provisioning rises, so ROE falls and the multiple falls with it.
Deep diveShow more details
Pitch tip
'Sector P/B compressed 0.5x→0.4x in the low-rate era; rate normalization lifted multiples to 0.9x in 2024 — the target should benefit from the same re-rating dynamic.'