Banks Hapoalim and Discount intend to stop servicing PA banks

The move will deprive Palestinian companies of the ability to pay Israeli suppliers of electricity, fuel, food and medicine.

Israeli banks began servicing Palestinian financial flows in the mid-1990s, following the Oslo Accords and the Paris Protocol, which called for linking two financial systems using a common currency.

In 2017, the state and banks agreed on a temporary scheme: banks are issued a legal “letter of indemnity” (a guarantee to cover losses from possible claims related to the financing of terrorism and money laundering through counterparties in the Palestinian Authority), which is renewed every six months.

About 90% of Palestinian trade passes through this system. Hapoalim and Discount provide clearing of payments on it in the amount of about 51 billion shekels per year; Israel’s total trade with the Palestinian Authority in 2025 is estimated at more than NIS 21 billion.

Discount Bank in an official comment stated that for many years it continued to provide correspondent services at the request of the state in anticipation of a permanent decision, but, given the increase in risks and responsibility to clients, depositors and shareholders, it brought its position to the attention of the authorized authorities; the bank is ready to assist in the operational aspects of the transition period, provided that the state assumes risk obligations, as it promised 10 years ago

As part of its obligations, the state created a company to assume the functions of a correspondent bank for PA banks. It is headed by Dr. Gitit Gur-Gershgoren, former chief economist at the Securities Exchange Office. The Bank of Israel has already connected it to the national real-time settlement system. Technically, the company is ready to operate, but has not operated for a single day: its launch requires legislative amendments that have not been adopted since 2022.

Finance Minister Bezalel Smotrich publicly stated that it was not possible to find people willing to join the board of directors of the bank that will transfer funds to the Palestinian Authority, and that the state is not ready to take on these risks. The Bank of Israel, for its part, opposed the cessation of correspondent services, warning of a risk to the economic stability of both the Palestinian and Israeli sides.

The current extension of guarantees to banks is designed until the end of 2026, but banks announced their withdrawal from the system at the end of August – September. The Knesset was dissolved on July 17, parliamentary elections are scheduled for October 27, and a new government may not be sworn in until the first quarter of 2027. Thus, the decision on this issue passes from the Minister of Finance to Prime Minister Benjamin Netanyahu.