Determinants of Net Interest Margin (NIM) of commercial banks vary fromrneconomy to economy due to country, region and firm specific factors, andrnvariation in social and economic conditions. This research assesses andrnidentifies the determinants of net interest margin in the banking industryrnof Ethiopia. It mainly used unbalanced panel data collected from annualrnreports of sixteen commercial banks operating in Ethiopia during thernperiod 1997 to 2014. Specific macroeconomic data such as RGDP andrnInflation were collected from annual reports of the MoFED and used tornexamine their impacts. In addition, expert opinions were obtained fromrnbank experts working in both private and public commercial banks tornexamine the effects of changes in the internal and external factors on thernperformance of banks. Analysis was made based on two unbalanced panalrndata regression models focusing on the banking industry in general andrnprivate commercial banks independently. The findings of the studyrnindicate that cost efficiency, implicit interest payment, competition andrnscale efficiency consistently have positive and significant effects on netrninterest margin. On the other hand, management efficiency has negativernand significant effect on NIM in both cases. However, macroeconomicrnvariables like inflation and gross domestic product do not seem to havernsignificant effect on the determination of NIM. Thus, it is possible tornconclude that internal factors are indispensable determinants of bankrnperformance in Ethiopia. As a result, all commercial banks are expected tornconsider operational efficiency and business growth to maximize theirrnreturn. Therefore, executives of banks, bank policy advisors and thernmonetary authority need to focus on these two pillars performance tornensure optimal NIM.rnKeywords: Net interest margin, banking industry, macroeconomicrnvariables, private banks, banking performance