Nine Banks to Be Cut Off from Shekel Transactions with Palestinian Authority by October
Nine banks, including four Palestinian, four Jordanian, and one Egyptian, will be disconnected from the Israeli banking system for shekel transactions with Palestinian entities by September and October. These banks facilitate large Palestinian transactions and guarantees in shekels with Israeli businesses. The move is expected to severely disrupt the Palestinian Authority's financial system, as these banks serve as intermediaries for shekel transfers through Israeli correspondent banks Bank Hapoalim and Discount Bank.
The decision follows intelligence reports linking some Palestinian banks, notably Bank of Palestine, to money laundering and terror financing, including payments to families of terrorists. Israeli banks are ceasing correspondent relations with these nine banks, which include Bank of Palestine, Arab Islamic Bank, and several Jordanian banks. While shekel transactions will be halted, foreign currency dealings, such as in dollars, will continue through correspondent banks abroad, potentially shifting Palestinian trade to dollars, euros, cryptocurrency, and cash.
Israeli officials worry this shift will reduce Israel's ability to monitor and control financial flows to the Palestinian Authority. Despite government efforts since 2018 to provide indemnity letters protecting Israeli banks from legal risks related to terror financing, banks remain concerned. Plans to establish a government-owned correspondent bank have stalled due to delays by Finance Minister Bezalel Smotrich, prompting Discount Bank to independently initiate the cutoff.
The Palestinian banks announced in July that Israeli banks would soon stop handling their transfers due to increased terror financing risks. Israeli banks also fear legal repercussions from international correspondent banks like Deutsche Bank and Citi. Bank Hapoalim is reviewing the matter, while Discount Bank declined to comment. The trade volume between Israel and the Palestinian Authority is expected to exceed 21 billion shekels in 2025, underscoring the significant impact of this financial severance.
