Israeli Banks Plan To Sever Links With Palestinian Lenders Amid Rising Tensions

Israeli banks have informed Palestinian financial institutions that they plan to end key correspondent banking services within weeks, raising concerns of a major economic disruption in the West Bank. Palestinian officials warned that the move could affect trade, salary payments and the supply of essential goods, including electricity, water, fuel and food.

The banking links between Israel and Palestinian lenders serve as a critical channel for transactions between the two economies. Palestinian Monetary Authority Governor Yahya Shunnar said the services are not merely a technical arrangement but a foundation supporting commerce and daily economic activity for millions of people.

Shunnar said five Palestinian banks that depend on Israel’s Bank Hapoalim for correspondent banking services could lose access from October 1, while banks working with Discount Bank face a possible cutoff from September 1. Together, the two Israeli banks process around 51 billion shekels ($16.5 billion) in Palestinian transactions annually, including a large share of exports passing through Israel.

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The Palestinian Monetary Authority warned that ending the banking arrangements could severely disrupt the financial system. Shunnar described the potential impact as an immediate crisis rather than a gradual decline, saying it could affect consumer prices, trade operations and the ability of businesses and individuals to conduct payments.

Israel’s Finance Ministry confirmed that the two banks had indicated their intention to end the services, citing increased risks and concerns over possible legal claims. The ministry said discussions were underway to find a way to continue correspondent banking operations while protecting Israel’s security and economic interests.

Israeli banking officials said commercial banks were increasingly concerned about risks related to money laundering and terrorism financing allegations. Palestinian banking representatives warned that losing access to formal channels could push more transactions into cash-based systems, increasing financial instability. The issue also comes as the Palestinian Authority faces economic pressure following the suspension of some customs revenue transfers by Israel, which form a major part of its income.

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