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Occupied Palestinian Territory: Financial Institution Compliance Requirements

The Palestine Monetary Authority (PMA) has been working to improve supervisory mechanisms in the banking sector of Occupied Palestinian Territory, a critical step towards financial stability. In its latest efforts, the PMA has focused on strengthening the regulatory framework and implementing international best practices.

Banking Sector Overview

According to the PMA’s data, the Palestinian banking system structure consists of:

  • 7 local banks
  • 300 specialized lending institutions
  • 13 foreign banks
  • A total of $11.54 billion in net assets, with customer deposits reaching $8.94 billion
  • Credit ratio stands at 54.8%, while non-performing loans (NPLs) account for only 2.5% of the total

Regulatory Framework and Compliance Requirements

The PMA has set minimum capital requirements of USD 50 million, which will be raised to USD 75 million. Consolidation in the banking sector is also underway, with problematic banks being liquidated and weak ones restructured. The number of banks has decreased from 21 to 16 since the start of the consolidation process.

The PMA’s regulatory framework includes:

  • PMA Law
  • Banking Law
  • Regulations and instructions
  • Guidelines from international organizations such as:
    • Basel Committee on Banking Supervision (BCBS)
    • Financial Stability Board (FSB)

Challenges and Mitigation Measures

Despite progress, the banking sector in Occupied Palestinian Territory still faces significant challenges. The Israeli occupation has resulted in:

  • Geographical separation between the West Bank and Gaza, limiting access to borders, movement, and trade
  • Complex liquidity management issues due to physical cash movement restrictions between banks and branches
  • High political risk, regional instability, lack of a domestic currency, and inefficient use of foreign currencies (NIS, JD, and USD)

To address these challenges, the PMA has implemented measures such as:

  • Risk-based off-site and on-site supervision
  • Business continuity planning
  • Market conduct regulation
  • Payment system management
  • Financial stability monitoring
  • Deposit insurance

Cross-Border Cooperation and Development Efforts

The PMA has established cross-border cooperation agreements with Central Banks that operate in Palestine, as well as exchange programs to share expertise. The authority is also working to develop:

  • Microfinance sector
  • Mortgage sector
  • Capital markets
  • Insurance sector

Conclusion

In conclusion, the PMA’s efforts to strengthen the banking sector in Occupied Palestinian Territory are critical to promoting financial stability in the region. However, the complex challenges posed by the occupation require continued cooperation and innovative solutions to ensure the success of these initiatives.