Article: Loan loss provision practices during economic crises: evidence from banks listed on the Damascus Securities Exchange Journal: Afro-Asian Journal of Finance and Accounting (AAJFA) 2023 Vol.13 No.3 pp.277 - 304 Abstract: This study aims to examine loan loss provision (LLP) practices exercised by banks listed on the Damascus Securities Exchange during the Syrian crisis, the incentives behind such practices, and whether those practices differ between Islamic and conventional banks. A sample of eleven conventional and three Islamic banks was used during the period 2011-2018. Applying a random effect panel data model revealed that banks engaged in income smoothing activities to decrease their income when their earnings were high but not to increase their income when their earnings were low. In addition, banks that reported losses in the previous year engaged in fewer income decreasing activities than banks that reported a profit; however, no evidence was detected of their engagement in income increasing activities. As per the use of LLP to manage regulatory capital or to signal future value, the findings did not support such practices. Moreover, Islamic banks do not appear to exercise different LLP practices or to have different incentives to manipulate LLP compared to conventional banks. Inderscience Publishers - linking academia, business and industry through research

Title: Loan loss provision practices during economic crises: evidence from banks listed on the Damascus Securities Exchange

Authors: Layla A. Ashoor; Linda Ismaiel; Zeina Al-Ahmad

Addresses: Department of Management and Marketing, College of Business Administration, University of Bahrain, P.O. Box 32038, Kingdom of Bahrain ' Department of Banking and Finance, Faculty of Economics, Tishreen University, P.O. Box 2230, Lattakia, Syria ' Faculty of Business and Management, Muscat University, P.O. Box 550, PC 130, Muscat, Oman

Abstract: This study aims to examine loan loss provision (LLP) practices exercised by banks listed on the Damascus Securities Exchange during the Syrian crisis, the incentives behind such practices, and whether those practices differ between Islamic and conventional banks. A sample of eleven conventional and three Islamic banks was used during the period 2011-2018. Applying a random effect panel data model revealed that banks engaged in income smoothing activities to decrease their income when their earnings were high but not to increase their income when their earnings were low. In addition, banks that reported losses in the previous year engaged in fewer income decreasing activities than banks that reported a profit; however, no evidence was detected of their engagement in income increasing activities. As per the use of LLP to manage regulatory capital or to signal future value, the findings did not support such practices. Moreover, Islamic banks do not appear to exercise different LLP practices or to have different incentives to manipulate LLP compared to conventional banks.

Keywords: discretionary loan loss provision; income smoothing; capital management; signalling; Islamic banks; conventional banks; crisis.

DOI: 10.1504/AAJFA.2023.132207

Afro-Asian Journal of Finance and Accounting, 2023 Vol.13 No.3, pp.277 - 304

Received: 28 Aug 2020
Accepted: 08 Jun 2021
Published online: 13 Jul 2023 *

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Title: Loan loss provision practices during economic crises: evidence from banks listed on the Damascus Securities Exchange

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