An appropriate credit risk level is a crucial decision for all business organization to be taken by business organization for maximization of firm value and continued their growth. The mainobjectives this study was to examine the effects of liquidity and other controlled variables on credit risk of commercial banks of Ethiopia. Accordingly, the main concern ofthis study was to examine empiricalevidence from firm specific factors such as, liquidity, loan growth, bank size, profitability, bank capital and macro variable like Inflation on credit risk of Ethiopian banking industry. To accomplish this objective the research used panel data analysis and only secondary data were used. All banking business was included in the sample frame if they have ten years annual report. Statistical tests like descriptive statistics, correlation, and specific classical linear regression model assumption was tested. A relationship was established between firm specific factors and credit risk measured by provision for loanloss ratio of the banks for a period of ten years. The random regression results show that firm profitability, bank Size, and inflationhas significant impact on credit risk of Ethiopian banking industry for the study period. Whereas firm liquidity, loan growth and bank capital has insignificantimpact on credit risk of banks. From this finding the researcher recommended that the sample of Ethiopian commercial banking industry should give attention for significant variable that will result higher credit risk such as profitability and size of banks. At the same time care should be take other variable even if they have insignificant impact on credit risk.