International Journal of Economics, Commerce and Management United Kingdom Vol. IV, Issue 2, February 2016 Licensed under Creative Common Page 442 http://ijecm.co.uk/ ISSN 2348 0386 DETERMINANTS OF BANKS’ PROFITABILITY: EVIDENCE FROM BANKING INDUSTRY IN ETHIOPIA Gemechu Abdissa Shuremo Department of Management, Mizan-Tepi University, Ethiopia gemechu.mtu@gmail.com Abstract The purpose of this study is to examine the effect of bank-specific, industry-specific and macroeconomic determinants on banks’ profitability in Ethiopia. The study applied balanced panel data of eight Ethiopian commercial banks that covers the period of 2002 - 2012. The paper uses ordinary least square (OLS) technique to see the impact of determinants on profitability of Ethiopian commercial banks. The findings of the study show that all bank specific determinants except credit risk and expense management have statistically significant and positive relationship with banks’ profitability. On the other hand, variables like credit risk, expense management and regulation have a negative and statistically significant relationship with banks’ profitability. All macroeconomic determinants in this study like economic growth, interest rate spread and exchange rate have statistically significant and positive relationship with banks’ profitability. The study suggests that bank managers, directors, and all stakeholders should not only be concerned about internal structures and policies, but also must consider the external environment together to improve their bank performance in general and profit in particular. Keywords: Banking Industry, Determinants, Ordinary Least Square, Profitability, Ethiopia. INTRODUCTION The banking industry has experienced some profound changes in recent decades, as innovations in technology and the inevitable forces driving globalization continue to create both opportunities for growth and challenges for banking managers to remain profitable in this increasingly competitive environment. Both internal and external factors have been affecting the profitability of banks over time. Hence, identification and analysis of the determinants of bank