This paper analyzes determinants of non-performing loans for 12 commercial banks in Portugal and Spain based on annual data between 2005 and 2021, a period that reflects significant changes in the economy. Our purpose is to understand which macro and bankspecific variables significantly impact Iberian banks’ balance sheets and provide deeper insight into non-performing loans as a measure of the fragility of the banking system. For the panel data sample, we implemented a random effects estimation method and the investigation showed that problematic loans for Portugal and Spain are strongly affected by the economic slowdown, proxied by a positive relationship with unemployment and inflation rate from the previous period. Lagged non-performing loans ratio also has a strong positive influence on the performance of current non-performing loans. When investigating bank-specific factors, this research found evidence of a significant negative relationship with bank profitability and capital adequacy, as well as a weak positive effect of loan growth in non-performing loans.