Assessing systemic risk of Moroccan banks during Covid-19 pandemic using Marginal expected shortfall

Abstract

The objective of this work is to assess the systemic risk of the main Moroccan listed banks in the context of the current health crisis and to analyze the impact of the epidemiological evolution of Covid-19 in Morocco on the banking sector. We use the Marginal Expected Shortfall (MES) proposed by Brownlees and Engle (2012) to identify the Moroccan banks mostly exposed to systemic risk. The MES estimates the exposure and contribution of each bank to systemic risk, allowing us to rank Moroccan banks according to their participation in systemic risk. On the other hand, we proposed the multivariate GARCH model DCC-GARCH to estimate the condi-tional volatility of Moroccan banks' stock returns caused by the high uncertainty of the financial situation following the health crisis and also to estimate the conditional correlation between each bank and the market returns. The results obtained suggest that during the pandemic crisis, the stock returns of the main institutions of the Moroccan banking sector followed the same trend of the stock index of the banking sector which reported a negative shock and a significant decline in its performance from the beginning of 2020.This decline is followed by a period of gradual and partial recovery during the year 2021. The results also show that the Attijari wafa Bank oc-cupies the first place in terms of systemic importance. The other banks seem to be less sensitive to the financial difficulties of the banks in place and the most important factor in the difficulties of other banks. In fact, it is necessary to point out that health crises can trigger financial crises and the stakeholders of the financial system must question the way the current financial system works.