PETALING JAYA: The banking sector is not expected to see a material impact on income recognition or operations from the prohibition of the flat-rate interest method and Rule of 78 for hire purchase loans by next year.
This will happen as the Hire Purchase Act takes effect on June 1, 2026, with the full prohibition of the Rule of 78 and the flat-rate interest method expected to come into force after the end of March 2027.
The interest calculation method will be replaced with the reducing balance method with effective interest rate disclosure, a system many view as being fairer and rewards borrowers with interest savings on early repayment or settlement.
BIMB Research noted that while the Rule of 78 yields minimal benefit for early settlement due to its front-loaded interest structure, reducing-balance financing allocates more of the early instalments toward principal repayment.
The amount of interest saved is largely determined by how borrowers choose to manage their repayments.
Based on data, the research house noted the proportion of outstanding fixed-rate hire purchase loans are the lowest for MBSB Bank Bhd at 0.01%, followed by RHB Bank
Bhd (0.2%) and Alliance Bank Malaysia Bhd (0.5%).
In contrast, Public Bank Bhd carries the highest share at 17.5%, followed by Hong Leong Bank Bhd (12%) and Malayan Banking Bhd at 11.6%.
BIMB Research remained constructive on the sector.
“We remain positive on the sector, anticipating stronger earnings growth of 5.9% in 2026, up from 3.6% in 2025.
“This improvement is underpinned by decent loan expansion, resilient net interest margins (NIMs) and solid non-interest income, driving a return on equity of 10.2% in 2026 versus 10% in 2025.
“Dividend yields are projected to stay attractive in the 5% to 6% range, supported by consistent earnings and potential capital ratio enhancements stemming from Basel III credit risk reforms effective July 1, 2026, as banks continue to improve capital efficiency,” the research house stated in a report.
It expected the local banking industry to post a loan growth of 5% to 6% in 2026 driven by domestic consumption and investment activities.
With no further rate cuts anticipated this year, banks are likely to see a stable to slight improvement in NIMs in 2026 and 2027, supported by lower funding costs.
It also noted investment and trading income to moderate in 2026 versus 2025, but foreign exchange income is expected to remain strong, supported by ongoing market volatility.
The research house expected the banking sector’s asset quality and credit costs to remain stable with only a marginal increase in credit costs projected for 2026.
