Bank Hapoalim, Israel's biggest bank, declared Tuesday it was severing business ties with Palestinian banks in the Gaza Strip, a move that could deepen economic hardship in the territory controlled by Hamas.
Israeli currency is used by Palestinian president Mahmoud Abbas' government in the West Bank to pay salaries to tens of thousands of its employees in the Gaza Strip. According to Reuters, a Palestinian banking official said Bank Hapoalim's move could force Gaza banks to shut down if other Israeli institutions follow suit and stop transferring shekel notes to them.
"In light of the (Israeli) government's decision to declare the Gaza Strip hostile territory, Bank Hapoalim has decided to terminate its banking activity with banks and branches in the Gaza Strip," the Israeli bank said in a statement.
Israel declared last Wednesday it would treat Gaza Strip as a "hostile territory" and cut its fuel and power supplies to the area.
A Hapoalim spokeswoman said it would take several weeks for the bank to cease completely what she described as "minimal services" to Gaza's financial institutions.
Sami Abu Zuhri, a Hamas official, called the move "a grave decision" that would have a strong impact on life in the Gaza Strip.
New shekels are also needed in Gaza to replace those leaving the territory to pay for imports, mainly from Israeli suppliers.
Israel Discount Bank, another main provider of shekels and services to Palestinian banks, said the issue of severing ties with Gaza Strip was under discussion "but we have not reached a decision."