Israel's largest bank to sever ties with Palestinian banks

Israel's largest bank said Tuesday it is severing ties with Palestinian banks, the latest blow to the beleaguered Palestinian economy in the wake of the formation of a new Hamas government.

Photo: Israel's largest bank to sever ties with Palestinian banks

Israel's largest bank to sever ties with Palestinian banks

Bank Hapoalim said in a statement that it made its decision after a review of local and international laws and "especially in light of the circumstances created." The statement did not say when the decision would go into effect, and a spokeswoman declined to elaborate.

The extent of the bank's ties with the Palestinian banks wasn't immediately known, but is believed to be significant. The Palestinian government does its local business in the Israeli currency, converting millions of dollars each month to pay its 140,000 employees.

In a related matter, a former senior Palestinian official with knowledge of the situation said Arab banks have advised the Hamas-controlled Palestinian Authority to withdraw money from their accounts, fearing that Western countries will soon impose sanctions against the banks.

The United States and EU have branded Hamas a terrorist organization.

The official declined to be identified because he no longer holds a government position.

Palestinian Foreign Minister Mahmoud Zahar criticized banks for refusing to deal with Hamas. "The banks which won't deal with us will lose because we have all the legitimate channels to receive funds," he told reporters in the Gaza Strip.

Officials with the Jordan-based Arab Bank, which controls about 50 percent of the banking market in the Palestinian areas, said they did not know of any change in their relationship with the Palestinian Authority. One executive said the bank's ties with Hapoalim are minimal.

The officials declined to be identified because they were not authorized to speak to the press.

Hamas defeated the long-ruling Fatah Party in January legislative elections, and last week, the Islamic militant group's new Cabinet was sworn into office.

Israel already has cut off about $55 million ( Ђ 45.6 million) in monthly tax transfers to the Hamas government. The money, collected by Israel for the Palestinians, is a main source of funding for the monthly Palestinian budget, reports the AP.

I.L.