This paper examines the effect of industrial diversification on financial performance of selected banks from Ethiopia. The data consists 6 years period from 2008/09-2013/14 for ten private and two government commercial banks. Overall, the banks could be said to have diversified their loan portfolios among different industries in Ethiopia. The fixed effects model was used to estimate the regression and industrial diversification was found to have a negative and significant effect on both return on asset and equity. This is another evidence in support of the focus strategy for better profitability.