Outsourcing is a common trend to business organizations in Ethiopia. It is very easy task to find enormous well organized outsource service providing firms at these days. The last few years have brought significant changes to the functioning of banks. One of the most significant ways of adaptation to the changing economic environment that reduces operational costs is outsourcing. Thus, this study aimed to investigate the effect of outsourcing practices on operational efficiency towards banking sector. The study attended 80 % of responses rate. Simple random sampling (probability sampling) and judgmental or purposive sampling (Non-probability sampling) was applied based on the surveyed bank branches. Descriptive statistics like frequency and percentage were employed to analyze background information of respondent and inferential analysis was conducted by regression and correlation analysis. Validity, reliability and pilot tests were done. Thus, this study found that this bank has been mainly used outsourcing to focus on core functions, to spend more time on strategic issues, and to assist growth. Services this bank obtained from the service providers has been very satisfactory after outsourcing. In addition, outsourcing janitors inadequately allow focusing on core business function. There is an alignment between the bank service requirement and capability of service provider. Moreover, outsourcing motives, outsourcing functions, outsourcing challenges and outsourcing quality have a significant effect on operational efficiency. Thus, this study concluded that outsourcing motives, outsourcing functions, outsourcing challenges and outsourcing quality enhance have an operational efficiency in banking sector. This study suggests that this bank should maximize giving feedbacks to the service provider, as it benefits the organizations and the service providers as well as employees