Israeli banks set to sever financial links with Palestinian banks, sparking payment fears

Israeli banks set to sever financial links with Palestinian banks, sparking payment fears

Submitted by
Fayha Shalash
on
Fri, 07/24/2026 - 09:54

Two Israeli banks cutting ties with Palestinian financial system could disrupt trade, salary payments, imports and financial transfers across occupied territories

An Israeli man stands beside an automated teller machine at a Bank Hapoalim branch in Jerusalem, 1 May 2020 (Menahem Kahana/AFP)

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Israeli banks Hapoalim and Discount have informed Palestinian banks of their intention to halt vital correspondent banking services within weeks, news agency AFP reported. 

Five Palestinian banks that rely on Bank Hapoalim for correspondent banking services will lose access to these services on 13 August, while banks that conduct transactions through Discount Bank face a similar fate on 1 September, the report quoted Palestinian banking officials as saying. 

The Israeli finance ministry said that the decision was made due to "increasing public risks and concerns about private lawsuits that could target Israeli banking institutions".

In a statement, the ministry said it is in discussion with the two banks to ensure the continuation of correspondent banking services "in a safe and responsible manner," while protecting Israel's security and economic interests.

Palestinian banks are linked to Bank Hapoalim and Bank Discount through correspondent banking relationships, an operational link connecting the Palestinian banking system to the Israeli financial system.

The linkage ensures smooth functioning of essential operations such as executing payments in shekels between Palestinian and Israeli banks, settling payments for Palestinian imports from Israel (which constitute the bulk of Palestinian trade), receiving and transferring wages of Palestinian workers employed in Israel and the settlements. 

The arrangement also allows for returning surplus shekel banknotes accumulated in Palestinian banks to the Israeli banking system, and facilitating transfers between Palestinian and Israeli companies.

If the ties are severed without any alternative being found, it could have far-reaching consequences, including disruptions in payments between Palestinian and Israeli companies.

The move will also disrupt essential imports such as food, fuel, and medicine, and worsen the existing shekel cash accumulation crisis within Palestinian banks; a problem stemming from existing restrictions on repatriating surplus cash to Israel.

'Subdue Palestinians'

The impact on the Palestinian Authority would depend on how long the disruption lasts and whether a temporary or permanent solution is reached. 

If correspondent banking relationships are indeed severed, the Palestinian Authority could struggle to pay public sector salaries because of delayed or more costly fund transfers.

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Trade disruptions could also reduce tax revenues, increasing fiscal pressure, while payment delays and shortages of shekels could weaken public confidence in the banking system.

Economic expert Nasr Abdel Karim told Middle East Eye that the Israeli government has been implementing "every possible policy for the past four years to subdue the Palestinians in one way or another".

Karim said the move was politically motivated and would add to the challenges already facing Palestinians, including fuel shortages, delayed salaries, an oversupply of shekels in local banks, high youth unemployment and deteriorating living conditions. 

He said the decision would place additional pressure on traders and the private sector.

"Banks' decisions are based on minimising risks and protecting the interests of their shareholders and depositors. The uncertainty created by Smotrich left the banks no room for manoeuvre, so they decided to sever the relationship. But this, of course, comes within the context of expansionist politics," he added.

Extending economic sovereignty 

The increased reliance on cash instead of electronic transfers is another challenge facing the Palestinian banking sector, with its accompanying higher risks and costs. 

There is also a possibility that banks' ability to provide certain services to their customers may decline if the disruption continues for an extended period. 

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Palestinian officials as well as international bodies have warned that the disruption could lead to a broader economic and banking crisis if an alternative mechanism is not found or the current arrangements are not extended.

Political analyst Mohammed al-Qeeq told Middle East Eye that Israel deliberately sought to sever all ties with the Palestinian Authority to pave the way for its collapse by dealing with private companies that would act as its substitutes.

According to Qeeq, this will allow Israel to deal with Palestinians without having to deal with the Palestinian Authority.

“Israel treats the West Bank as Judea and Samaria, which means to the international community that there is no sovereign Palestinian state. It means that it is Israeli land, and dealings will be with companies, not with the Palestinian Authority,” he explained.

In his view, the banks’ move is a crucial part of the annexation plan to dismantle the Palestinian Authority and cripple the Palestinians by preventing them from having an independent economy and even basic necessities like fuel, thus reducing them to mere temporary residents in this place.

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