Determinants of Financial Performance of Interest Free Banking Business of Ethiopian Commercial Banks
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Date
2021-01
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Publisher
A.A.U
Abstract
Interest free banking is among the emerging trends in the global economy and the fastest
growing industry worldwide. It is a banking system which is in consonance with the spirit,
ethos and value system of Islam and governed by the principles laid down by Islamic
Shari'ah. It is started in Ethiopia on 2013. This study examines the determinants of
financial performance of interest free banking business by commercial Banks in Ethiopia
considering three internal(bank size, liquidity management and operating efficiency) and
two external (Inflation and GDP) factors. Return on average asset as a proxy of profit will
be used to measure financial performance. To achieve this objective, quantitative research
approach and descriptive research design was used. The data obtained was from
secondary source using annual financial reports. Five years panel datafrom 2015/16-
2019/20 of four purposively sampled commercial banksthat are pioneer in starting the
business and with a well organized data were examined by running regression analysis
using E.Views software 9.0 from total population of eleven banks. Based on the findings of
the study, liquidity management has positive and significant impact on the financial
performance of Ethiopian Banks operating Interest free Banking business, while the rest
variables have insignificant impact on financial performance of these banks
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Keywords
Bank size operating efficiency, Interest free banking