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.