Despite the Israeli government's decision.. Israeli banks disregard the six-month extension and grant Palestinian banks short-term extensions

SadaNews Economic Report: Identical economic and diplomatic sources revealed to "SadaNews Economy" that Israeli banks did not comply with the Israeli government's decision to extend the banking relationship arrangements with banks operating in Palestine for six months until the end of 2026, and only provided short-term extensions, reflecting the ongoing uncertainty that dominates the banking relationship between the two sides.

This follows a notable precedent, as the last extension of the banking relationship ended on July 12 of this month, without an immediate renewal as has been customary in recent years, where extension decisions were issued on the same day or the following morning.

However, this time saw a break that lasted several days before the new extensions were issued, raising widespread concerns within the banking sector.

According to the sources, the Israeli government agreed to extend the relationship for six months, but Discount Bank decided to extend it only until September 1, 2026, which was the date previously communicated to the banks operating in Palestine as the last extension before ending the banking relationship with them.

Meanwhile, Bank Hapoalim granted an extension only until August 13, 2026, which is approximately one month, differing even from the duration adopted by Discount Bank, reflecting the absence of a unified position among Israeli banks and their non-compliance with the Israeli government's extension decision until the end of the year.

Unstable Environment..

Economic sources that spoke to "SadaNews Economy" believe that the short extensions reflect the loss of trust by Israeli banks in the stability of the decision-making mechanism related to the banking relationship, after years of linking its renewal to repeated political decisions by Israeli Finance Minister Bezalel Smotrich.

The sources add that the continued renewal of the relationship for short periods places Israeli banks themselves in front of operational, legal, and commercial risks, making it difficult for them to plan their operations or manage their obligations with banks operating in Palestine, in light of the uncertainty that accompanies each renewal date.

The sources confirmed that the current crisis is no longer confined to banks operating in Palestine but has extended to Israeli banks, which have begun to deal with an unstable banking environment due to the mechanism that has managed the file over the past years.

Return to the Idea of "Clearing Company"..

In light of these developments, the proposal to establish an Israeli clearing company to manage the financial and commercial relationship between Israeli banks and banks operating in Palestine has resurfaced, as it is considered an institutional solution that reduces the state of uncertainty.

However, sources emphasized that the success of any such company depends on the nature of the entity that will oversee it and its operational mechanism.

They clarified that subjecting the company to the control of the Israeli Finance Ministry would, in practice, mean the continuation of the same political interventions that led to the current crisis, while it should operate according to independent banking and commercial standards and under the oversight of the relevant regulatory authority, ensuring the stability of the banking relationship away from changing political decisions.

They added that any new framework would not achieve the desired goal if its decisions remained subject to political considerations, as the fundamental problem lies not in the absence of a mechanism, but in the entity that controls its decisions.

Implications for the Palestinian Economy..

Banking circles warn that the continuation of short extensions keeps the state of anxiety present for banks operating in Palestine and those dealing with them, while casting shadows on the movement of trade and financial transfers between Palestine and Israel, further complicating the planning of economic activities at a time when the financial and banking sector needs a stable and predictable environment to ensure business continuity and protect the interests of all parties.

According to sources, the next phase will be crucial in determining whether Israel will head towards building a stable banking framework subject to professional considerations or continue to manage this file through temporary political decisions, which would keep the banking relationship susceptible to fluctuations and repeated crises.

Challenges of Establishing the Israeli Clearing Company..

Although the proposal to establish an Israeli clearing company to manage the financial and commercial relationship between Israeli banks and banks operating in Palestine is presented as a long-term solution, experts and banking sources see that the success of this step will depend on the nature of the entity that will manage it and the governance mechanisms it will be subjected to.

The sources wonder: Will the company be subject to the Israeli Finance Ministry or supervised by the Israeli central bank? If it remains under the authority of the Israeli Finance Ministry, the fears lie in the possibility that its decisions will become politically motivated instead of being based purely on banking and commercial standards.

The sources believe that granting the Israeli Finance Ministry broad powers in managing the company may open the door to unilateral decisions affecting the relationship with banks operating in Palestine, whether through suspending or terminating dealings with a specific Palestinian bank, which could create a permanent state of uncertainty within the banking sector.

They emphasize that any company of this type must operate according to international banking standards and be subject to professional oversight from the Israeli central bank, ensuring the independence of its decisions from political considerations and providing a stable and predictable working environment for both Palestinian and Israeli banks.

It is also necessary to note that the Palestinian Monetary Authority must be a key party in shaping the regulatory framework governing the work of this company and not leave the matter solely to the banks operating in Palestine in negotiating with the Israeli Finance Ministry. Additionally, having international oversight or guarantees during the establishment phase would enhance trust and ensure that the new relationship is based on sound financial and commercial foundations, rather than changing political considerations.

Essential questions remain that need clear answers before proceeding with the establishment of the company, including: Will the company manage the relationship with all banks operating in Palestine, or will it be limited to banks currently linked to correspondent accounts with Israeli banks? Another question arises regarding who will have the final authority to accept or refuse dealings with any operating bank in Palestine, and whether these decisions will be subject to independent regulatory controls or remain hostage to Israeli political decision-making.

These questions will be crucial in determining whether the clearing company will represent a genuine solution for the stability of the banking relationship or merely transfer the current crisis to a new institutional framework.