Determinants of Non-Performing Loans in Cambodia

Abstract

This study investigates the determinants of non-performing loans (NPLs) in Cambodia’s banking sector, with particular focus on the impact of lending rates within a highly dollarized financial system. Cambodia’s banking industry has experienced rapid credit expansion over the past decade; however, the post-pandemic period has been accompanied by a significant rise in NPLs, raising concerns about financial stability and credit risk management. Using annual data from 2020 to 2025, this study employs an Ordinary Least Squares (OLS) regression model to examine the effects of lending rates, house prices, GDP growth, and loan restructuring policies on NPL dynamics. The empirical results indicate that lending rates have a positive and statistically significant impact on NPLs, suggesting that borrowing costs are the primary driver of credit risk in Cambodia. GDP growth is negatively associated with NPLs, implying that favorable macroeconomic conditions enhance borrowers’ repayment capacity and reduce default risk. House prices exhibit a negative but statistically insignificant relationship with NPLs, indicating that collateral value plays a relatively limited role in explaining credit risk. Additionally, loan restructuring policies implemented during the COVID-19 pandemic temporarily suppressed reported NPL ratios by delaying the recognition of distressed loans. The findings underscore the importance of managing interest rate risk and implementing macroprudential supervision in highly dollarized economies. This study contributes to the literature by integrating financial, macroeconomic, and policy-related factors into a unified analytical framework and by providing empirical evidence from a relatively under-researched emerging market.