Israeli Manufacturers Warn of Massive Export Losses as Banks Cut Palestinian Banking Services

The Manufacturers Association of Israel has issued a stark warning about the severe economic impact expected from the decision by Bank Hapoalim and Discount Bank to cease providing banking intermediation services to the Palestinian banking system. This move, set to take effect by October 1, 2026, is anticipated to cause a combined annual damage of approximately 20 billion shekels to Israeli trade, including 15.2 billion shekels in exports and 5 billion shekels in imports from the Palestinian Authority.

These banking services have allowed Palestinian banks to conduct international money transfers, facilitating ongoing trade. According to the Palestinian Monetary Authority, transactions through these two Israeli banks total around 51 billion shekels annually. The banks had operated under legal indemnity from the Israeli government, which Finance Minister Bezalel Smotrich has threatened to revoke, escalating the risk of collapse of the Palestinian banking system.

The Manufacturers Association president, Avraham (Novo) Novogrutsky, criticized the Finance Ministry for ignoring the issue and warned that halting these services will not stop trade but push it into risky, unregulated cash-based channels, increasing the potential for money laundering and terrorism financing. The disruption could also reduce imports from the Palestinian territories, leading to higher prices and less competition in the Israeli market.

Furthermore, the economic fallout may extend to difficulties in paying Palestinian workers employed in settlements in the West Bank, especially following restrictions on Palestinian entry into Israel after October 7. This could indirectly hinder construction activities in these settlements.

The Manufacturers Association urges the Finance Ministry to prepare in advance for the banking cutoff by establishing a legal, documented, and supervised payment mechanism. This would allow banks to continue operations without legal exposure and enable Israeli companies to maintain trade with the Palestinian territories.