Kelifa Srmolo (PhD)Zemzem Ahmed2025-06-162025-06-162025-01-18https://etd.aau.edu.et/handle/123456789/5570The main objective of the research was to analyze and compare the financial performance of conventional and interest-free banking systems in Ethiopia, focusing on key financial ratios. The study adopts a quantitative research methodology, using secondary data from the financial statements of selected banks over a period of three years (2021-2023). Key financial ratios such as profitability, liquidity, risk and solvency, leverage, and efficiency ratios are analyzed to evaluate the financial health and performance of the two banking systems. The findings of the study reveal that the majority of the differences in financial ratios between the two banking models were not statistically significant. However, Interest-free banks while more stable, faced higher operational costs relative to their income. The comparative analysis highlights relative strengths and weaknesses of each banking system, with conventional banks demonstrating greater resilience to economic shocks and interest-free banks showing higher efficiency in using assets and equity to generate profits. The study recommends that conventional banks focus on technological innovation and enhanced risk management practices to maintain competitiveness. Interest-free banks are suggested to optimize their debt management and improve cost efficiencies to ensure long-term sustainability. Additionally, the study suggests further research into the impact of regulatory frameworks on the performance of both banking systems and their role in promoting financial inclusion. This research contributes to the understanding of financial performance in Ethiopian banking and provides valuable insights for both policymakers and banking institutions looking to enhance the effectiveness and stability of their operations Key Words Interest-Free Banking, Conventional Banking, Financial Performance, Comparative Analysis, Financial RatiosenThesis