Nov. 4 (Bloomberg) -- Malaysian banking stocks are the most expensive in the world, said Credit Suisse Group. They have the highest price-to-book ratios while their earnings outlook has dimmed, it said.

Malaysian banks trade at an average of 1.5 times their book values, the highest among all banks covered by the group globally, Danny Goh, an analyst at Credit Suisse wrote in a report today. Public Bank Bhd. and Hong Leong Bank Bhd. are the two top sell recommendations, he said.

``The premium valuations cannot be sustained,'' he said, maintaining an ``underweight'' call on Malaysian banks. ``We expect the global economic crisis to take its toll on the Malaysian economy by early 2009. The possibility of further cuts in street earnings estimates could weigh on share performance.''

Goh cut his earnings estimates for Public Bank, Hong Leong and Bumiputra-Commerce Holdings Bhd. by as much as 25 percent for 2008, 2009 and 2010 to reflect slowing loan growth, higher costs and lower non-interest income. Banks in China, Pakistan, Indonesia, Australia and Hong Kong offer better value, he said.

The government is due to announce lower growth forecasts today. Malaysia's economic growth will probably stall next year at zero percent, which would be the worst performance in 11 years, as oil and other commodity prices drop and the global financial crisis hurts the country's exports, Paul Donovan, deputy head of global economics at UBS AG said yesterday.

Overseas investors' holdings in Malaysian banks account for about 29 percent of the total foreign ownership in the country's equities, said Goh. ``We view this as a major risk which could contribute to share price vulnerability for the stocks that are well owned by foreigners,'' he said.

Profit Fall

The Kuala Lumpur Finance Index, which groups Malaysian banks trading on the exchange, has fallen 37 percent so far this year, compared with the 48 percent decline in the MSCI Asia-Pacific Finance Index in the same period, Bloomberg data showed. Profit at Malayan Banking Bhd., the nation's largest bank, has fallen for three straight quarters.

Malaysian banks have held up ``much better in the recent sell-off,'' said Goh. The banks trade at an average of 10 times their 2009 earnings estimates, which is 15 percent more expensive than their regional peers, he said.

Yesterday, Aseambankers Malaysia Bhd. cut its estimates for profits at Public Bank and Bumiputra-Commerce as bad debts rise and loan growth and capital markets slow.

To contact the reporter on this story: Soraya Permatasari in Kuala Lumpur at soraya@bloomberg.net

Last Updated: November 3, 2008 22:17 EST