Impact of COVID-19 Pandemic on Asia-Pacific Banks

The outbreak of the Coronavirus (COVID-19) pandemic led to global economic consequences. This paper measures the dynamics of spillover effects before and during the COVID-19 pandemic among Asia-Pacific banks. Spillover effects provide an accurate representation of the transmission of shocks across financial institutions during adverse events, such as the COVID-19 pandemic. We apply the Diebold-Yilmaz spillover index to investigate the impact of COVID-19 on spreading shocks in the banking system. We consider the interactions of the 50 largest banks in the Asia-Pacific region over the period 1 January 2018 to 18 November 2021. The empirical results show varying patterns of spillover before and during the COVID-19 pandemic. The total spillovers intensify following the COVID-19 outbreak. Total spillovers decreased after governments adopted measures to mitigate the spread of COVID-19, including lockdowns, social distancing, wearing face masks, and vaccinations. This shows that the COVID-19 pandemic led to an increase in systemic risk. Caution needs to be put in place to monitor these banks to reduce instability in the banking sector.