It covers payment methods and information on, banking systems, foreign exchange controls, and U.S. and correspondent banking.
Methods of Payment
Most local importers use letters of credit. U.S. firms should use contractual arrangements to ensure fulfillment of payment obligations, particularly when beginning a business relationship. Recently, however, American exporters have been demanding that payments be made in advance even for long-time customers with good credit history.
Small Business Administration loan guarantees enable small U.S. exporters to obtain financing through commercial banks, usually short-term (i.e. 12-month) export working capital loans for single transactions. SBA’s international business trade loan program also offers small export trading and export-management companies long-term financing to compete more effectively and to expand or develop export markets.
For more information about the methods of payment or other trade finance options, please read the Trade Finance Guide.
The Palestine Monetary Authority (PMA) has the power and responsibility to regulate monetary policies in the West Bank and Gaza. In the absence of a national currency, the PMA focuses on fiscal policy and regulating the banking sector, financial institutions, and money changers. It is the sole holder and manager of the Palestinian Authority’s (PA’s) and Palestinian public-sector entities’ foreign currency reserves. With 13 commercial banks comprising 379 branches operating in the West Bank and Gaza, the local banking sector has undergone rapid growth since the establishment of the PA in May 1994. Israeli banks do not operate in the West Bank and Gaza. Banks operating in the West Bank and Gaza routinely deal in the Israeli shekel, Jordanian dinar, and U.S. dollar. Israeli shekels are preferred for retail business transactions, while Palestinians prefere U.S. dollar and Jordanian dinar-denominated savings accounts. At times, Israeli-imposed security restrictions on Gaza following the Hamas takeover in 2007 have created liquidity shortfalls there. Additionally, banks in the West Bank hold an excess of liquidity in shekels due to Israeli restrictions on the transfer of cash from Palestinian banks to the Israeli correspondent banks.
To offer Israeli shekel accounts, local banks must maintain correspondent relationships with Israeli banks. Discount Bank is the correspondent bank for Jordanian banks operating in the West Bank and Gaza, while Bank Hapoalim is the correspondent bank for Palestinian banks. Currently, the PMA and the Bank of Israel are working on creating government-owned entities on both sides to replace the current correspondent banks. Most local banks currently have a relatively conservative lending approach, primarily because of lack of legal enforcements. Local banks generally offer savings and checking accounts; some do either personal or commercial lending or both. Most commercial and private lending is done on a short-term basis, of one-to-three years and one-to-four years, respectively, with shorter terms the norm. Firms often must secure loans with assets worth the full amount of the loan – or more – as collateral. The lending to deposit ratio is increasing but remains low at 65.1% at the end of December 2021 compared to 80% in regional markets. At the end of 2021, total deposits at local banks amounted to $18 billion. From the end of 2020 to the end of 2021, credit facilities increased by $0.7 billion to reach $10.7 billion. Banks provided the PA with loans amounting to $2.26 billion at the end of May 2022.
Foreign Exchange Controls
Under the Paris Protocol, the Israeli shekel, Jordanian dinar, and U.S. dollar are all legal tender in the West Bank and Gaza, although the Israeli shekel typically will serve as the means of payment for all purposes, including official transactions. Local banks may accept other currencies as a means of payment for any transaction.
U.S. Banks and Local Correspondent Banks
The Bank of Palestine and the Arab Bank are the two largest banks operating in the West Bank and Gaza capturing two-third of the matket share and have correspondent relationships with U.S. banks. All commercial banks operating in the West Bank and Gaza issue credit and debit cards to customers upon request and their use is increasing as more retail outlets accept them. VISA and MasterCard are the leading credit cards in use. Banks also issue special debit cards with limited balances for customers who want to make purchases over the Internet.
Further details on financing in West Bank and Gaza can be found at the 2022 Investment Climate Statement.