Signaling view of loan loss provision in Islamic banks of Malaysia

Loan Loss Provision (LLP) has been a major element in the bank profits fluctuations in recent years. Loan loss provision is used as a tool to control credit risk. There has been considerable attention to signaling view of loan loss provision. After the recent global financial crisis in 2008, banks were concerned about the low level of their loan-loss provision. Since results via earning management and capital management are less forward looking, this study intends to examine the signaling aspect of loan loss provision. This paper investigates Islamic banks regulated by Bank Negara Malaysia for the period of 2008-2012, using a panel data approach. The result of this study indicates a significant positive relationship between the loan loss provision and future earning