Dr. Jihad Al-Wazir: the banking system is sound and ready to help fund reconciliation and Gaza's reconstruction

This week Pal-Think for Strategic Studies hosted Dr Jihad Khalil al-Wazir, governor of the Palestine Monetary Authority, in a special meeting entitled “The banking system in Palestine: reality and hopes”. This meeting comes within the series of meetings of the Edward Said intellectual salon that Pal-Think for Strategic Studies organises with experts and decision-makers with the aim of promoting serious and intellectual dialogue on the issues that concern Palestinian affairs. The meeting witnessed a heavy attendance of interested academics, journalists, politicians and business people, and was distinguished by frank and deep discussion of the role of the banking system and the Monetary Authority during the years of the siege, as well as what is expected of them in the period of reconciliation.

The session was opened by Mr Omar Shaban, founder and director of Pal-Think for Strategic Studies, who welcomed the guests and pointed to several questions that have occupied many minds for five years, among them the role of the Monetary Authority and the banking system in national reconciliation and reconstruction, the steps the Monetary Authority has taken to improve its performance, and the extent of the objectivity and credibility of the idea of introducing an independent Palestinian currency.

Dr Jihad al-Wazir began his remarks with the efforts the Monetary Authority has made to develop itself and improve the performance of the Palestinian banking system. He pointed out that the Monetary Authority and the banking system have been in a state of crisis management more than of performance development. The Palestinian arena has passed through the circumstances of division, war and siege, and the Monetary Authority had to follow mechanisms similar to those followed by the international oil companies in crisis management.

Crisis management

Al-Wazir spoke about some of the efforts the Monetary Authority made during the crises the Palestinian territories passed through in the previous period, among them: supplying the 25 branches in the Gaza Strip with fuel and diesel to ensure the operation of the banks amid the fuel and electricity crisis, with instructions to work for 3 hours in the event that electricity was cut off entirely from the Strip; applying international standards with regard to disaster management and providing alternative sites for the branches in anticipation of any emergency; and putting in place a considered plan of communication among the banks to address liquidity and how to deal with cash. The liquidity ratio was raised to 1%. The geopolitical-fluctuations reserve was applied at the beginning of February 2011, placing 15% of the banks' profits in a special reserve in anticipation of any emergency.

A liquidity crisis.. or an incomplete banking cycle

Al-Wazir explained that the anti-money-laundering law has been applied to the banking system, so that no funds can be transferred without complying with these laws. Through the relationship with the Israeli central bank, damaged cash in the banks was exchanged for new cash, which removed a great burden from the shoulders of the banking sector in the Gaza Strip. He affirmed that there is no real shortage of the shekel currency in the Strip, but that there is an accumulation of the shekel currency with some money-changers and its scarcity in the banks. He also pointed out that the Monetary Authority issued a circular a few days ago concerning exchange-rate differentials, obliging the banks to pay the citizen according to the type of account, whether in shekels or dollars, and that the point of difference in the exchange rate on the screen should not exceed 100 points.

The banking system is strong and solid

In his reply to one of the interventions about the extent of the Monetary Authority's readiness to issue the currency and to take precautions against any problems that might appear from the Israeli side or a collapse of the banking system, he replied: “We do not look at the question of the currency emotionally; the elements of sound construction are present. We have a bank settlements system and a solid banking system; we liquidated the weak banks and reduced their number from 21 to 18 banks; we have an effective financial market, the market with the smallest decline in the Arab world. Our settlements system is one of the most complex systems in the world, as it carries out settlements for all the currencies circulating in Palestine. We helped the lending institutions to create a social-security network; the Monetary Authority has become a member of the Group of Twenty. We reduced risks by establishing the credit database. We have a banking system distinguished at the Arab level in all respects, in standards and in capital adequacy, and the default rate in the banking system is only 2%.” Dr al-Wazir also pointed out that the ratio of facilities granted compared with deposits has reached 51%, and that a deposit-guarantee institution would be issued in 2012 so that it would not be affected by any financial crises.

Al-Wazir pointed out that the Monetary Authority has issued a circular concerning the setting of standards for hiring and dismissal in the Palestinian banks, and that this arrangement has been applied to the basic and supervisory structures and will then be applied to the remaining structures; and a governance manual has been adopted for application to all the companies and to the banking system. Dr al-Wazir explained that there is high liquidity in the Palestinian banking system, pointing out that during the global financial crisis Israel withdrew 500 million shekels from the Palestinian banking system.

At the end, Mr Omar Shaban presented a summary of the issues the citizen in the Gaza Strip currently suffers from, in the hope that they will be addressed soon, among them: the necessity for the banks to deal more flexibly with employees and weak segments; the necessity for the currency exchange rates in the banks to be equal to those of the market; likewise strengthening the banks' social responsibility fund and the necessity of raising their contribution to development in a way that eases the siege on the citizens of the Gaza Strip; equalising the procedures and value of the loans granted to the citizens of the Gaza Strip with those applied in the Palestinian West Bank; increasing the number of bank branches and ATMs in the Gaza Strip to make things easier for citizens, especially in rural and remote areas; as well as applying transparency in hiring at the banks, and opening up membership of the banks' boards of directors so that they may be an incubator for new competencies.