Bank lending and financial stability during the COVID-19 pandemic: evidence from Taiwan’s banking sector

The COVID-19 pandemic had considerable effects on economic activities and underscored the crucial role of bank lending behavior in maintaining financial stability. Using financial statement data from Taiwanese commercial banks from the first quarter of 2017 to the first quarter of 2023, the present study empirically examines bank lending behavior and its association with financial stability during the COVID-19 pandemic. The results reveal that under relief policies, banks increased secured corporate lending while reducing unsecured corporate loans and expanded several categories of consumer lending . Further comparisons by ownership indicate that private banks expanded lending while strengthening capital buffers , which is associated with improved financial stability. By contrast, state-owned banks actively implemented policy tasks, but their leverage ratios declined, and capital adjustments did not keep pace with loan expansion, which may indicate potential leverage-related vulnerability. These findings suggest that in a crisis triggered by nonfinancial factors, private banks may also play an important role in sustaining credit supply, whereas the stabilizing function of state-owned banks may depend on adequate capital adjustment and leverage management.