Financial stability has become an important concern for banking institutions, regulators, and policymakers due to its role in ensuring the soundness of the financial system and supporting economic growth. This study examined the determinants of financial stability of commercial banks in Ethiopia during the period 2015–2024. A quantitative research approach was used in the study. Balanced panel data were collected from audited financial statements of ten commercial banks. Both descriptive and explanatory research designs were applied. In this study, financial stability was measured using the Z score. The explanatory variables were grouped into three categories: bank-specific factors, industry related factors, and macroeconomic factors. Bank-specific variables included capital adequacy, liquidity, non-performing loans, bank size, and management efficiency. The industry and macroeconomic variables included competition, gross domestic product, and inflation. The regression results showed that liquidity and management efficiency were the only variables that had a statistically significant effect on financial stability. Liquidity had a positive effect, meaning that banks with higher liquidity were more financially stable. Management efficiency, however, had a negative effect, indicating that inefficiency reduces financial stability. The other variables, including capital adequacy, non-performing loans, bank size, GDP, inflation, and competition, were found to have no statistically significant effect on financial stability in this study. Overall, the study concluded that internal bank factors, especially liquidity and management efficiency, play a more important role in determining financial stability than external economic and industry factors in Ethiopian commercial banks. Based on the findings, the study suggests that banks should focus more on improving liquidity management and strengthening operational efficiency in order to enhance their financial stability. Regulators are also encouraged to support policies that improve efficiency and strengthen liquidity monitoring in the banking sector.