Assessment On the Effect of Interest Free Banking on Profitability a Case Study on Cooperative Bank of Oromia

The aim of this study was focus on the assessment of interest free deposit mobilization's effect on profitability on Co-operative Bank of Oromia. The study was employed the explanatory research type. For this study researchers were collect the necessary information by using secondary source of data. The secondary source of data was obtained from the bank document such as annual report of the bank. In the sampling size five year financial statement was discussed (2017-2021). In analysis part ratio analysis was discussed briefly in this paper, i.e, profitability ratio, liquidity ratio and efficiency ratio was discussed. In profitability ratio return on asset, profit to expense ratio, interest free banking ratio and return on deposit was analyzed. The study found that in profitability ratio, return on asset and return on deposit ratio has fluctuated trends in the study periods, profit to expense ratio and interest free banking ratio has a strong increasing trends in each year. Overall profitability ratio performance, the interest free banking have a positive effect on banks profitability that is average ROA of 1.764 cent of return for each 1 birr investment . In liquidity ratio interest free banking deposit ratio, loan to deposit, loan to asset ratio and cash to deposit was reviewed. In IFB ratio, LAR and LDR, the study found that the bank has an increasing trends for the study period, and cash to deposit ratio is strictly declining, which indicates the banks liquidity position becomes weak and weak in the study period, but it have a potential of generating more incomes. A bank have an average CDR of the bank is 26.4%, which means a bank has 26.4% of cash on hands which shows the liquidity of the bank becomes weaker. In efficiency ratio asset utilization, income to expense and operating efficiency were discussed. And the study showed that, asset utilization and income to expense ratio has an increasing trends in each year, which means the bank is better in generating of incomes using less operating expenses. In operating efficiency the result show it is a decreasing trends in each year, this is good for banks, the banks have much operating revenue to cover operating expenses without raising other source to cover operating expense. In IER the bank has an average of 10.61 which means a bank has 10.61 income from 1 birr operating expense. From the study analysis, we can conclude that IFB have a positive impact on Cooperative Bank of Oromia profitability. And the bank generates much profit by providing interest free banking to the society and the bank is good in better utilizing its asset, deposits and expenses.