Abstract: With the slowing economy, the Somali banking industry experienced a drop in performance as of December 2017. During the year 2017, the industry recorded a 9.6% drop in earnings after taxes. The NPLs ratio increased to 12.3 percent in December 2017 from 9.3 percent in December 2016, indicating a decrease in asset quality. The overall goal was to determine how islamic-compliant banking affects the financial performance of selected Somalia commercial banks. Innovation diffusion theory, Modern portfolio theory, and Agency theory led the research. The longitudal research design was used in the study since it helped in the construction of an issue for a more detailed inquiry. There were four commercial banks operating islamic banking in the population. Because the study solely looked at commercial banks operating islamic banking in Somalia, this population was chosen. Because the population is tiny, a census design was used to ensure that all commercial banks who do islamic banking as part of their primary business are included in the study. Data from a secondary panel was used. For the period 2015 to 2020, data on liquidity, asset quality, efficiency, and management quality were gathered from bank supervision reports and chosen bank final audited financial and income statements. The statistical package for social science software was used to do the data analysis (SPSS). The data was seen, analyzed, and documented using SPSS. The descriptive statistical tools aided in the description of the data as well as the amount to which it would be employed. The study's findings revealed that commercial bank asset quality has a beneficial impact on the financial performance of commercial banks in Somalia. The positive association also suggests that asset quality influences financial performance by attracting new clients. Second, the study found that liquidity management had a favorable impact on the financial performance of a few commercial banks. Asset quality ratios demonstrated how the chosen banks fared in terms of placements and advances. The outcomes of the study show a relative stability and growth in liquidity management in the financial performance of the commercial banks studied. Credit risk monitoring and management allow banks to protect their assets and shareholders' interests. The study discovered a weak positive link between the size of a company and its financial performance in Somalia's commercial banks. The selected banks demonstrated an upward trend in company size over a five-year period, leading to the conclusion that firm size had a beneficial impact on the financial performance of Somali banks. The study came to the conclusion that managerial efficiency has a considerable impact on commercial bank financial performance. Over a five-year period, the data demonstrated a continuous increase in management efficiency at the selected commercial banks, as well as a corresponding increase in bank performance. According to the findings, bank management should place a greater emphasis on cost efficiency in order to achieve the ideal expense level in banks. According to the findings, banks should seek liquidity support from the central bank by raising pre-positioned assets that can be used as collateral during a crisis.
Keywords: The author gives 4 – 10 keywords which are related to the major part of their research work.
Title: ROLE OF ISLAMIC BANKING PRACTICES ON FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN SOMALIA
Author: Abdaziz Ahmed Mohamed, Dr. Oluoch Oluoch
International Journal of Social Science and Humanities Research
ISSN 2348-3156 (Print), ISSN 2348-3164 (online)
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