Israeli bank to sever West Bank ties, raising alarm over economy

The West Bank economy is heavily reliant on Israel and, in the absence of a sovereign currency, the shekel is the primary currency in use.

JERUSALEM - One of two Israeli banks giving Palestinians access to financial services plans to end the relationship in September, a move Palestinian officials warn could put further pressure on an economy already in turmoil.

The West Bank economy is heavily reliant on Israel and, in the absence of a sovereign currency, the shekel is the primary currency in use. Yet banks operating in the Palestinian territory have no direct access to Israeli financial institutions, leaving transactions dependent on Israeli correspondent banks for clearing.

Two lenders, Israel Discount Bank and Bank Hapoalim Ltd, have for years acted as a clearinghouse for the West Bank’s economy, acting as intermediaries in transactions between Israeli and Palestinian banks. Anything from the deposit of salaries to Palestinians working in Israel, and customs payments to Israeli authorities relating to imports into the West Bank.

Discount Bank is preparing to step away from that role in September, cutting off the five banks it services in the West Bank from the financial system, the deputy governor of the Palestine Monetary Authority, Mohammad Manasra, told Bloomberg.

“These institutions handle payments for essential imports such as electricity, water, fuel, and animal feed,” Manasra said. He warned that the West Bank could eventually see the supply of goods and services grinding to a halt.

The West Bank is heavily reliant on trade with Israel, importing US$3.65 billion (S$4.6 billion) worth of goods from Israel in 2024, more than half the total, and exporting US$1.47 billion, or 85 per cent of its shipments abroad.

The Palestinian Authority is already facing a mounting financial crisis due to Israel’s decision to halt the transfer of taxes it collects on behalf of the PA, which accounts for about two thirds of its revenues. No funds have been delivered since May last year and Palestinian officials say the backlog now amounts to some US$7.5 billion.

That’s forced the cash-strapped PA, that handles daily affairs in parts of the occupied West Bank, to partially withhold salaries to its employees, cut services in hospitals and schools, and reduce welfare support, among other things.

Israel froze Gaza’s share from the tax payments after Hamas attacked Israel in October 2023 before completely stopping transfers, saying the money was being used in what it says is as a “pay for slay” scheme. It refers to a PA program offering a stipend to Palestinian