A Case Of Selected Ethiopian Commercial Banks: The Determinant Of Financial Performance Of Interest Frees Banking

Abstract

Interest-free banking is both one of the emerging patterns in the global economy and the sector with the fastest growth worldwide. It is a financial system that abides by the guiding principles of Islamic Shari'ah and is in line with the essence, ethos, and value system of the faith. It started in Ethiopia in 2013.This study looks at three external (inflation, Exchange rate and GDP) and three internal (bank size, liquidity management, and operating efficiency) elements to determine the financial performance of interest-free banking by commercial banks in Ethiopia. To evaluate financial performance, return on average assets will be utilized as a stand-in for profit. Explanatory research design and a quantitative research approach were used to accomplish this goal. The secondary source used to gather the data was annual financial reports. Regression analysis was performed using E-view 10 on six years of panel data from 2015/16 to 2020/21 of four purposefully sampled commercial banks that were pioneers in launching the company and had well-organized data. According to the study's findings, the financial performance of Ethiopian banks engaged in interest-free banking is positively and significantly impacted by liquidity management, while the other variables have a negligible effect.