liberalization in the form of direct and portfolio investment in the banking sector wasrnofficially announced by the government in 2019, the study investigates how this major policyrnshift after more than seven decades will affect domestic banks that are currently in operationrnin the country. With a largely cordoned off sector domestic banks have become the pillars ofrnthe finical scene in Ethiopia and the paper utilizes quantitative and inferential analysis tornanalyze how this paramount sector would be impacted once the policy is undertaken, utilizingrneconometric models and stratifying the population in different homogeneous strata the studyrnidentifies how banks would react to foreign competition and supplements that analysis withrnthe study of important ratios indicating were the sector currently stands and if it can withrnstand the competition heading its way. Results from the analysis indicates that banks thatrnwere established early on before the year 2000 to be exact perform much better on manyrnscales and are largely affected by micro economic factors while latter established banks showrna volatile performance and are affected largely by macro-economic factors. The fact that evenrnbetter performing banks canâ€™t meet the international standards and recent banks showrnvolatility indicate that time is needed for banks to adjust their stances for the competition andrna mix of the polish and French approaches would best suit this demand but any policy that isrnundertaken must be done is a prudent and intendant manner so that rational and proactiverndecisions can be made.