(MSC) IN ACCOUNTING AND FINANCE

As noted by Sharon (2007), loans have a vital contribution towards development of economy. However, its nonpayment also leads to incidence of huge loss on banks in particular and country in general. Hence, this study was conducted to examine both bank specific (loan to deposit ratio, capital adequacy ratio, return on asset and return on equity) and macroeconomic (lending rate, inflation and effective tax rate) determinants of NPLs of commercial banks in Ethiopia. To this end, the researcher has selected eight senior commercial banks in Ethiopia judgmentally. This study used secondary sources of data, which is panel data in nature, over the period 2002-2013 These data were collected from NBE and CSA. Furthermore, fixed effect model was used to examine the determinants of NPLs. This research is an explanatory research design that identifies the cause and effect relationships between the NPLs and its determinants. The study shows a down ward sloping of nonperforming loans for commercial banks in Ethiopia. The finding also revealed as LTD ratio had positive whereas INFR had negative, but insignificant effect on NPLs of commercial banks in Ethiopia. However, bank profitability measured in terms of ROE, banks capital adequacy ratio and lending rate had negative an