Corporate governance is essential for mitigating financial risk and enhancing the resilience of financial services firms. The 2008 financial crisis underlined the critical role of corporate governance in ensuring financial system stability. Following the crisis, policymakers and international standard-setting organizations urged for more severe governance structures to keep banks from taking on too much risk and prevent another systemic collapse. This study examines the influence of corporate governance and financial factors on credit risk within the Albanian banking industry. Using data from 12 commercial banks over the period 2012–2022, the study uses regression analysis with EViews software to study how board independence, ownership concentration, executive compensation, bank size, and capital adequacy impact credit risk. The outcomes indicate that higher board independence, executive compensation, and a larger bank size are linked with lower credit risk, while ownership concentration is directly related to credit risk. The findings suggest that improving corporate governance practices, specifically increasing board independence and lining up executive compensation with performance, can lower credit risk in the banking sector. Furthermore, authorities should monitor the impact of ownership concentration, as powerful shareholders may engage in riskier practices. This study provides valuable insights for policymakers and banking regulators in developing the stability of the Albanian financial system.