This paper examines the role of governmental institutions in the macroeconomic environment—the nonperforming loan (NPL) relationship. By applying a dynamic specification to panel data consisting of 28 SSA countries for a period spanning 2010–2020, we find that the GDP per capita growth rate consistently contributed significantly to a reduction in the NPL ratio. On the other hand, domestic credit expansion is found to be associated with a significant increase in NPLs. Further, without interaction terms, the four governance variables, namely the economic index, institutional quality index, political index, and aggregate governance indicator, have a negative and statistically significant impact on the NPL ratio, meaning that these facets of governance institutions contribute to decreasing NPL levels. Moreover, the contingency effect estimations show that the interaction terms between GDP per capita growth and the four facets of governance are significant. This implies that the impact of the macroeconomic environment on the NPL ratio is determined by the quality of the governmental institutions. However, the positive sign of the parameters suggests that a 1% increase in the interaction terms correlates with a 0.01% to 0.02% increase in NPLs.