The banking sector plays a fundamental role in economic growth, as it is the basicrnelement in the channeling of funds from lenders to borrowers. Efficient financialrnintermediation is an important factor in economic development process as it hasrnimplication for effective mobilization of investible resources. A major indicator of bankingrnsector efficiency is interest rate spreads. Thus, this study examines the bank, industry andrnmacro-economic specific factors affecting banks interest rate spread for a total of eightrncommercial banks in Ethiopia, covering the period of 2004-2013. To this end, the studyrnadopts a mixed research approach by combining document analysis and in-depthrninterviews. The findings of the study show that credit risk, liquidity risk, , operating cost,rnconcentration, reserve requirement, gross domestic product , interest rate volatility andrnexchange rate volatility have statistically significant and positive relationship with banksrninterest rate spread. Conversely return on asset, non interest income and financialrndevelopment indicator has a negative and statistically significant relationship with banksâ€™rninterest rate spread. However, the relationship between management quality and inflationrnis found to be statistically insignificant. The study suggests that banks in Ethiopia shouldrnnot only be concerned about internal structures and policies, but they should considerrnboth the internal and external environment together in fashioning out strategies tornimprove their intermediary efficiency.rnKey words: Interest rate spread, efficient financial intermediation, economic growth,rncommercial banks.