Foreign Currency and Banking
In accordance with Oslo 2, responsibility for banking has been transferred to the Palestinian Authority. The Paris Protocol contains significant provisions that will affect Palestinian banking when implementing legislation and regulation is effected.
The Paris Protocol authorized the creation of the Palestinian Monetary Authority (PMA), which enjoys the powers of most central banks, with the notable exceptions that it cannot issue a Palestinian currency and it cannot apply for state membership status at the International Monetary Fund. The PMA supervises fiscal policy in the Palestinian Authority and manages official reserves. It also reviews proposed legislation that will regulate banking in the future.
Regular savings accounts and interest bearing checking accounts in dollars may be opened in the West Bank and Gaza. Accounts may be held in U.S. dollars, Jordanian Dinars or New Israeli Shekels, and all three currencies are used for conducting business in the Palestinian Authority.
In the absence of a Palestinian currency, banks operating within the jurisdiction of the Palestinian Authority have to compete for deposits with banks located elsewhere. This competition is mostly for local residents' deposits. Unlike Israeli banks, local banks are generally not allowed to offer inflation-indexed savings accounts or foreign currency-dominated accounts, which places them at a relative disadvantage in competing for the accounts of large Palestinian firms and international organizations.
While many financial institutions are now operating in the Palestinian Authority, two of the most active banks are the Arab Bank and the Cairo Amman Bank. As Palestinian banking is still in its infancy and the banks that operate in the Palestinian Authority are unable to assess credit risk and worthiness, mid- and long-term financing is often difficult to obtain. It is anticipated that this will change as experience is gathered by the lending institutions as well as the promulgation of regulations and guidelines by the PMA.
As of 1997, there were 17 commercial banks with 69 branches operating in the PA-controlled areas of West Bank and Gaza, including one foreign bank (ANZ Grindlays). The largest institution is the Arab Bank, which currently has 17 branches worldwide, including two in New York.
Banks in the PA area generally offer only short-term credit such as overdrafts, LC's and bank guarantees. Average interest rates on loans in Israeli Shekels are 20-25 percent and 13 percent on loans in Jordanian Dinars. In 1996, the Arab Palestinian Investment Bank (APIB) started conducting business in the Palestinian areas. It was established by the Arab Bank (55 percent of shares), the International Financial Corporation, the private investment arm of the World Bank (25 percent of shares), the German Investment and Development Company (DEG), which belongs to the German Government (15 percent of the shares) and the Enterprise Investment Company, owned by Palestinian businessmen (5 percent of the shares).
Israel, Jordan, Egypt and the Palestinian Liberation Organization have concluded several bilateral agreements, some of which affect banking matters.
The Central Bank of Jordan (CBJ) and the Israeli Controller of Banking (ICB) reached an agreement allowing Jordanian banks to open branches in the West Bank, after first seeking the approval of the CBJ and ICB. This agreement will be valid until superseded by action of the PMA.
The Arab Land Bank reopened its branches in the West Bank pursuant to the terms of an accord reached between Egypt and Israel in May of 1993, subject to the supervision of the CBJ, ICB and the Central Bank of Egypt.
© 2000 Mena Report (www.menareport.com)
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