International Journal of Finance & Banking Studies IJFBS ISSN: 2147-4486 Vol.4 No.2, 2015 www.ssbfnet.com/ojs Page29 Soundness of Ethiopian Banks Yonas Mekonnen Jimma University, Business and Economics College, Jimma, Ethiopia Hamdu Kedir Cooresponding Author. Jimma University, Business and Economics College, Jimma, Ethiopia +251 47 111 1458 W/Michael Shibru Jimma University, Business and Economics College, Jimma, Ethiopia Abstract A well-functioning financial institution will sustain a countries economic development and play a great role in reduction of poverty. One of the major participants in the financial institution is the banking industry. However, the mal-functioning of the banking system can be extremely costly to the real economy. As Bank is one of the participants and major key player in the financial institutions, it needs a continuous assessment by its supervisory and management. Mere ratio analyses are commonly used Performance measurement among the banking industry in Ethiopia. Nonetheless, these financial ratios are more of traditional as well as partial measurements. As such this study conducted using CAMEL framework set by bank for international settlement. The study takes secondary data which are gathered from audited annual reports of all banks. The result shows CAMEL framework is the best fit measurement for Ethiopian Banks and it give a comprehensive result which is very helpful for the governor to set a well determined policy and procedure. Key words: Commercial banks, CAMEL framework, performance JEL classification: G21, G 32 Introduction Today World is aspiring what one can get from globalization, and globalization be the means to combine one to another. This free movement creates many opportunities for different financial institution specially found in the least developing countries. The creation of free movements by globalization from country to country creates a competition between the arrival and domestic financial institution. Those financial institutions mobilize asset from those who have the capacity to invest to those who need money (Mishkin, 2004). As a result, the financial institution may urge the economy of the country in existence. The key players of the financial institutions, Banks are the key player to the economy and take the higher percentage compare to the other financial institution. The history of banks goes back to the year 2000 B.C when the Babylonian developed a system of banking( Shekar, 2002).From the beginning as banks start operation goes through different stages to reach what it has known. Through its different stages, Bank’s play a major role in the development of a country’s economy and take the highest percentage of the financial institutions. In Africa there are many commercial banks