The purpose of this study is to investigate issues relating to income-smoothing practice in a new context and to examine for Islamic banks the factors that affect loss provision for loans and investment in Murabaha, Musharka, and Mudarabah
Islamic banks offers a unique environment to test income smoothing, compared with conventional banks operating in many other countries, since they adopt the dynamic provisioning policy. Smoothing is supposed to be perfect when the variation coefficient is nil or/and the determination coefficient is equal to the unit. Results show that 49 (75%) banks have a determination coefficient between 0.5 and 1 and 44% banks have a variation coefficient less than 0.5 (29 from 66).
