Gaza banking system safe, regulator says, after Arab Bank closes 2 of 3 branches there

Regulator says Gaza banking OK despite closures

RAMALLAH, West Bank — The top Palestinian financial regulator sought to assure an anxious public Wednesday that the Gaza Strip is not facing a banking crisis after the Palestinian territories’ largest lender closed two of its three Gaza branches last week.

The decision by the Jordan-based Arab Bank to shutter the shops set off jitters among its Gaza customers. On Wednesday, dozens of clients lined up at the bank’s sole remaining branch in Gaza City, some of them in order to close their accounts.

Economists have said there is concern other lenders would follow Arab Bank’s lead and cut back on their operations in the Gaza Strip, possibly bringing down Gaza’s banking system.

Arab Bank has said it is scaling back because of “worsening conditions” in Gaza, but declined to elaborate.

Since Hamas seized Gaza by force in 2007, the nine banks maintaining branches in Gaza have tried to stay clear of the Islamic militants so as not to violate international anti-terrorism regulations. Hamas is listed as a terrorist organization in the U.S. and Europe, and banks could face sanctions if they work with Hamas.

Hamas officials reiterated Wednesday they don’t intend to interfere in bank business.

However, recent signs of greater Hamas assertiveness have raised concerns. In March, Hamas seized $400,000 from the Bank of Palestine account of a private Gaza charity after taking control of the organization, banking regulators said at the time.

Jihad al-Wazir, the top Palestinian banking official, tried to reassure depositors Wednesday that the Gaza banking system is stable. Al-Wazir heads the West Bank-based Palestine Monetary Authority, which reports to Hamas’ rival, the internationally backed government of Palestinian President Mahmoud Abbas.

Al-Wazir said Arab Bank is scaling back because of a drop in business in Gaza, but that the main branch and its ATM machines would keep operating. “There is no risk to the banking system,” he said.

Still, al-Wazir said the regulator fined Arab Bank 300,000 Jordanian dinars ($420,000) for closing the branches without first receiving his approval. He said the amount was unprecedented, but on par with the harm caused by the sudden closure.

A banking official familiar with Arab Bank operations said the third Gaza branch might also be closed, but that no decision has been made. He spoke on condition of anonymity because he was not authorized to speak to reporters about the issue.

A functioning banking system is key to Gaza’s survival. The territory has been hit hard by an Israeli-Egyptian border blockade, imposed after the Hamas takeover.

More than $5 billion have reached Gaza via bank transfers in the past three years, including monthly salaries for some 75,000 former civil servants loyal to Abbas, al-Wazir said, adding that the salaries feed about one-third of Gaza’s 1.5 million people.

Hamas has an additional 32,000 employees on its payroll, but in the past two months has only paid partial salaries, indicating the group is facing a growing cash crunch. The Islamic militants get most of their funding from abroad, in the form of cash smuggled through tunnels under the Gaza-Egypt border, and raise only about 10 percent locally. Iran and foreign Islamic groups are believed to be the main donors.

Al-Wazir said that despite occasional problems with Hamas, the banking system has remained intact.

He said Hamas recently asked the banks to pay taxes, but the Palestine Monetary Authority quickly quashed that idea.

Ziad al-Zaza, the Hamas economics minister, said Hamas has the right to demand tax payments but is not doing so for the time being. “We have not asked anything of them, and we will not ask anything of them,” he said. “They don’t work with us. We are not asking anything of the banks that live under the shade of the devil, the global finance system.”

Diaa Hadid in Gaza City, Dalia Nammari in Ramallah, West Bank, and Jamal Halaby in Amman, Jordan contributed to this report.