Israeli banks to cut ties with Palestinian counterparts: officials

RAMALLAH, PALESTINE: Israeli banks have informed their Palestinian counterparts that they intend to end critical banking services within weeks, Israeli and Palestinian officials said, raising fears of an economic crisis in the West Bank.

These banking links are essential for financing imports from Israel to the occupied Palestinian territory, including electricity, water, fuel and food, as well as for transferring wages earned by Palestinians working in Israel.

Five Palestinian banks that rely on Israel’s Bank Hapoalim for correspondent banking services will lose access on August 13, Palestinian banking officials told AFP.

Banks working through Discount Bank face a September 1 cutoff.

Israel’s finance ministry confirmed the two banks had proposed cutting ties with their Palestinian counterparts.

“In light of the overall risk environment and the growing concern over private lawsuits against banking entities, the Israeli banks recently announced their intention to discontinue providing correspondent banking services,” the ministry said in a statement on Wednesday.

The ministry is in discussions with the banks in a bid to “enable the continuation of correspondent banking activities in a safe and responsible manner, while safeguarding the security and economic interests of the State of Israel”, it said.

The two banks currently serve as a bridge between the Palestinian and Israeli financial systems, processing transactions in Israeli shekels — the currency also used in the Palestinian territories.

To protect the Israeli banks from legal liability for transactions processed on behalf of Palestinian banks, the Israeli government renews an indemnity every six months.

An Israeli banking official told AFP that commercial banks no longer want to bear these risks — including possible exposure to money laundering or terrorist financing — arguing that the arrangement was always intended to be temporary.

“Risks have increased with the years and the waiver is not enough. They (the banks) want the state to take the responsibility,” the official said.

Discount Bank said in a statement it had raised its concerns with the government.

“In light of the increasing risks associated with providing these services, and given our responsibility to our depositors and shareholders, we brought our concerns to the attention of the relevant authorities,” the bank told AFP.

Hapoalim said only that the “matter is currently under review”.

Experts interviewed by AFP warned that severing these banking ties could force more transactions into cash, increasing the risk of a banking crisis and expanding the informal economy.

“The Palestinian Authority is the largest borrower from local banks because it relies on them to finance public-sector salaries and budget deficits,” a Palestinian businessman with close ties to a local bank told AFP.

“So, if the banks collapse, the Authority collapses.”

The Palestinian Authority is already under intense financial pressure after Israel suspended the transfer of customs revenues it collects on the Authority’s behalf.

Those revenues account for roughly two-thirds of the PA’s income.