DefinePK

Abstract

This study aims to examine the impact of asset quality on the financial health of commercial banks in Cambodia. Using an explanatory approach with panel data analysis, the research analyzes annual data from 2017 to 2023 for 57 commercial banks, sourced from the National Bank of Cambodia. The analysis explores the effects of Non-Performing Loans (NPLs), Bank Size, Capital Adequacy Ratio (CAR), Interest Rates, Inflation Rate, and GDP Growth on Return on Assets (ROA) and Return on Equity (ROE). Diagnostic tests for heteroskedasticity, serial correlation, multicollinearity, and model specification are employed to ensure the robustness of the results. The findings indicate that NPLs significantly negatively impact both ROA and ROE, while Bank Size positively influences ROE but does not significantly affect ROA. CAR has a negative impact on both profitability metrics, suggesting that higher capital ratios reduce profitability due to increased capital costs. Interest Rates and Inflation Rate also show significant negative effects on ROA and ROE, whereas GDP Growth positively impacts both measures. To enhance financial health and performance, Cambodian commercial banks should focus on improving credit risk management, optimizing CAR, developing strategies to manage interest rate and inflation risks, and leveraging economic growth. These measures will strengthen financial health, improve performance metrics, and contribute to a more stable banking sector in Cambodia.
Keywords:  Asset Quality, Financial Health, Commercial Banks, Non-Performing Loans (NPLs), Bank Size, Capital Adequacy Ratio (CAR), Interest Rates, Inflation Rate, GDP Growth, Return on Assets (ROA), Return on Equity (ROE).