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The Palestinian banking sector

Mar 26,2018 - Last updated at Mar 26,2018

Running the Palestinian economy is a huge challenge emanating from being captive to the Israeli hegemony. The occupying authority dictates its conditions on the exports and imports of the West Bank and denies them free access to raw materials, water and even locations.

Banks in the West Bank, whether Palestinian-owned or branches of the seven Jordanian banks face accusations of money-laundering and supporting terrorist groups, namely resistance to occupation, but without any substantive proof to that effect.

Despite all of these encumbrances, the Palestinian economy at large and the banking sector in particular are doing well. The economy is expected to grow by 4.5 per cent in 2018, compared to 4.2 per cent in any substantive proof to that effect. 

Last week, the Union for Arab Banks held a conference in Amman under the patronage of Central Bank of Jordan Governor Ziad Fariz and with the presence of Palestinian Monetary Authority Governor Azzam Shawwa. The conference aimed at assessing the Palestinian banking system in the context of the Arab banking system. All speakers at the conference asserted that the Palestinian banking should be the main catalyst of the Palestinian sustainable development. Banks cannot just perform their traditional role, they must avail long-term finance for job-creating, wealth-building ventures. Since small and medium enterprises are successful in Palestine, more loans should be extended to them to allow them to overcome their hostile environment and prosper.

On the other hand, banking prudence is highly required. The unpredictable and unfriendly policies of Israel pose a severe unpredictable challenge. Israelis are now trying to stop lines of financing and threaten to withdraw the shekels in the West Bank from circulation. This decision, if taken, would pose a severe challenge and monetary destabilisation to the West Bank economy.

Jordan, which has a large part of its issued currency and JD-denominated deposits, should worry about such Israeli decision. It will cause a surge in demand for Jordan dinars, pushing them to become the only dominant currency in the Palestinian economy.

The Arab banking system should be on the alert of such a possibility. Moreover, it should help the Palestinians augment their cyber-security against potential Israeli hacking of the Palestinian banking system, or even against Arab banks in countries like Lebanon, Jordan, Egypt or even the Gulf states.

From the looks of it, the conference was well-prepared and came up with good tangible recommendations.

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