The study focuses on the investigation of the macro factors that affect the development of the bankingrnsector. Because, The banking sector is rudimentary due to the problems such as heavy dependence ofrninvestors in borrowed fund, excessive government borrowing, absence of secondary markets, lessrnattractive deposit rate, limited outreach of banking services, underdeveloped saving culture,rnpoor cross-selling activity of inflow of foreign remittance, deficit in the trade balance of therncountry. The purpose of this study is, therefore, to investigate the significant determinants andrnrecommend courses of action to be taken and analyze the level of development in comparison to otherrnEast African countries. Quantitative research approach is applied using econometric model estimatedrnOLS multiple linear regression and descriptive quantitative analysis technique. The study has found thatrnTrade Openness, Real Interest rate, population growth, and Government consumptionrnexpenditure have far reaching statistically significant impact on the development of the bankingrnsector by influencing the volume of credit provided by banks to the private sector. Remittance tornGDP ratio, Real Interest Rate and GDP growth rate significantly impact the broad money supplyrn(M2). There is also significant concentration of asset of the sector in three big banks and thernLevel of liquid asset to total deposit is lower than the East African countries though NPL is thernleast. The paper recommends strengthening of the trade balance & openness, cut budgetaryrndeficit, increase the real interest rate, cross-selling of inflow of remittance by banks and the NBErnshall take measures that enhance financial inclusion and improve the platform of requiredrninfrastructure in collaboration with the designated organs of the government to enhancerndevelopment and competitiveness of the banking sector