The Determination of Commercial Banks' Loan Growth in Cambodia

Abstract

ABSTRACT The primary aim of this study was to empirically examine CAMEL’s influence on commercial banks’ loan performance. This study utilized three different panel models, namely Pooled OLS, Fixed Effect, and Random Effect models, to examine the influence of the five components of banks’ risk rating, known as CAMEL, on the loan growth rate of commercial banks. The measurement of these components includes the equity-to-asset ratio for capital adequacy (C), the non-performing loan-to-loan ratio for asset quality (A), the operating expense-to-asset ratio for management capability (M), the return on asset for earning quality (E), and the liquid asset to asset ratio for liquidity (L). Furthermore, each model considered two macroeconomic indicators, specifically the real GDP growth and the growth rate of money supply measured by broad money (M2), as control variables. Over 12 years, from 2011 to 2022, the study has selected 22 commercial banks. The results of the Fixed Effect test suggest that the FE model is more suitable than the Pooled OLS model. However, the Hausman test indicates that the RE model is more appropriate than the FE model. The findings of this study revealed that the quality of assets played a highly significant role in determining the loan growth rate. The slope coefficient in all three models was statistically significant at a five percent level. In addition, the study revealed a statistically significant impact of the management capability and earning quality on the loan growth rate. Furthermore, the real GDP growth rate influenced the loan growth rate statistically. In contrast, the effect of broad money on the loan growth rate was found to be statistically insignificant. The study’s empirical findings indicate that the loans were significantly influenced by asset quality, management capability, and earning quality. Keywords: Loan; CAMEL; Pooled OLS; Fixed Effect; Random Effect Models