Bank Reactions to the COVID-19 Shock: A Systematic Literature Review and Lessons from Hong Kong SAR Commercial Banks

Abstract

This article sheds light on the diverse and significant impact of the COVID-19 crisis on the global financial system, with a special emphasis on banks' reactions to the worldwide shock caused by the COVID-19 pandemic. This paper fills a gap in the literature by conducting a systematic critical literature review of the various bank reactions using a Search, Appraisal, Synthesis, and Analysis (SALSA) framework. It shifts the perspective from a passive role of banks to an active, even proactive role of banks during the crisis. The analysis results show that financial supervisors should closely assess the global banking sector's sustainability and that policies should focus on improving bank lending conditions, which is helpful both for the stability of banks under challenging situations and for customers. Lessons from the largest commercial banks in Hong Kong SAR include the fact that adaptation, as well as positive transformation, have been some of the reactions of Hong Kong banks to the COVID-19 crisis. Finally, the findings of the study suggest many research avenues for mitigating the impact of future macroeconomic shocks on the banking sector.