The main goal of every banking institution is to operate profitably in order to maintain stability and sustainable growth. However, the existence of high levels of non-performing loans (NPLs) in the banking industry negatively affects the level of private investment, impair a bankís ability to settle its liabilities when they fall due and constrain the scope of bank credit to borrowers. External and internal economic environments are viewed as critical drivers for nonperforming loans. In this regard, the main goal of this study was to investigate the link between NPLs and bank-specific and macroeconomic factors, and establish the extent to which these factors affect the occurrence of nonperforming loans in commercial banks in Kenya. The dependent variable under investigation was nonperforming loans while independent variables included macroeconomic and bank specific factors. The macroeconomic factors included; real GDP, GDP per capita, lending interest rates, inflation, government expenditure, export and imports, exchange rate between the Kenya shilling and US dollar and asset value as measured by the Nairobi Securities Exchange (NSE) 20 share Index. Bank specific factors included; credit risk management techniques, bank structures, and quality management factors. The period covered under this study was 1995 to 2009. Secondary and primary data was used. A census of 44 commercial banks in kenya was taken. A causal- compararive research design based on bank structures was adopted. The study used panel econometrics approach employing both pooled (unbalanced) panel and fixed effect panel models. The study found evidence that per capita income was negative and significantly related to NPL levels across bank size categories ( large, t-value -6.13, medium, t-value -4.81, small, t-value -4.16). Similarly per capita income was negative and significantly related to NPL levels across bank ownership categories ( Foreign; t-value -4.45, local; t-value -6.53, government; t-value -6.41). Further, return on assets (ROA) was negative and significantly related to NPLs levels in large banks (t- value -8.10) and small banks (t- value -4.73) but insignificant in medium banks. In addition the study found that return on asset (ROA) was negative and significant in local banks (t-value-8.41) and government banks (t-value -3.99) but not in foreign banks. However the study found no evidence that banks asset size was related to NPLs levels across all bank categories in Kenya. In conclusion, the study found evidence that bank specific factors contribute to NPLs performance at higher magnitude (‚= 8.361) compared with macroeconomic factors (‚= 0.561). These results support Fofack, 2005; Flamini, 2009; Khemraj, 2009; Dinos & Ashta, 2010 findings. The study recommends that commercial banks portfolio management strategies focus more on the bank specific factors which the management has more control over and seek practical and achievable solutions to redress NPLs problems.