Introduction/Main Objectives: This paper examines the factors affecting non-performing loans (NPLs) in Ethiopian commercial banks. It explores both bank-specific and macroeconomic factors over 15 years (2008–2022), providing insights into their implications for credit risk management. The topic is crucial due to the significant impact of NPLs on financial stability and economic growth. Background Problems: The study addresses the critical problem of rising NPL levels in Ethiopian banks, posing challenges to profitability and economic stability. The primary research question is: What factors significantly influence NPLs in Ethiopian commercial banks? Novelty: This research is novel as it incorporates both bank-specific and macroeconomic variables within the Ethiopian banking context, where limited empirical studies exist. It bridges the gap by employing robust analytical methods to assess previously underexplored relationships. Research Methods: An explanatory research design was used, employing the Generalized Method of Moments (GMM) panel regression to analyze data from nine Ethiopian banks (one public and eight private) over 15 years. This methodological approach ensures reliable and unbiased results for addressing endogeneity concerns. Findings/Results: The findings reveal that return on assets and loan-to-deposit ratio have a significant negative effect on NPLs, signifying that higher profitability and efficient loan management reduce credit risk. Additionally, government expenditure and broad money supply also lower NPLs, indicating the positive role of fiscal and monetary policies. Conversely, a higher effective tax rate significantly increases NPLs. Conclusion: The study concludes that profitability, efficient loan management, and supportive fiscal and monetary policies are critical in reducing NPLs. It recommends enhanced borrower monitoring and emphasizes the importance of expansionary policies by the National Bank of Ethiopia and the government to minimize credit risks. The key takeaway is the vital role of integrated financial and policy strategies in mitigating NPLs.