Bank of Palestine: Banking against the odds

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By anyone’s book, Bank of Palestine has recorded fantastic figures for the first half of 2015. The fact that it has achieved these numbers in such difficult circumstances is testament to the resourcefulness of its people. It’s a trait shown across the Territories. How do they do it?

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Twenty per cent year-on-year growth is a good result in anybody’s book. But when Bank of Palestine achieved it, in its half-year results announced in August, it looked at first glance unfathomable. Banking, and the corporate life that banking supports, faces unparalleled challenges in Palestine, not least the division of the country into two unconnected halves, limited freedom of movement either between them or within them, and continuing occupation by Israel, which deprives West Bank citizens of everything from sufficient water to 70% of their own land. 

Still, that bounce in profits shows that even those circumstances are a vast improvement on previous horrors; after all, the second half of 2014 included a vicious war that killed more than 2,000 people.

The experience of business in Palestine is of inconvenience piled on obstruction piled on disadvantage. 

"Many parts of the West Bank are completely off limits, and there are only one or two roads that act as lifelines between the north and the south," says Bank of Palestine’s CEO, Hashim Shawa. "There are checkpoints at lots of the junctions on those lifelines, and often situations where the Israeli forces just close everything down. It interrupts traffic, movement of people and goods, daily lives, everything, and it puts off people from doing things and spending money. It all puts a massive constraint on the true potential of the Palestinian people and economy.

"It’s a layer of problems on problems on restrictions on restrictions on restrictions."

And yet: 20% profit growth, an asset base that grew even in the full-year result that included a 50-day war, return on equity of 14.4% in that same war-torn year, and one of the lowest nonperforming loan ratios in the Middle East. 

The next question is: how?

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"It’s a layer of problems on problems on restrictions on restrictions on restrictions." says  Hashim Shawa, Bank of Palestine

In order to understand this, Euromoney spends two days pinballing around the West Bank, meeting a range of the bank’s clients, from SMEs to those that have gone multinational, from returning rich expatriates to kickstarted Gaza Strip one-woman-band incubators. By recent standards, progress on the roads is smooth and we are rarely stopped for any length of time at checkpoints, but then again, our car has yellow Israeli plates rather than green or white Palestinian ones; if we had Palestinian plates, we wouldn’t be able to use many roads even on the West Bank, as those are reserved either for Israeli settlers (of whom there are now 600,000 in neat and ordered hilltop towns on Palestinian land) or Israel’s security forces.

Indeed, the first thing that becomes clear on the ground is that if the West Bank looks small on the map, that’s nothing compared to how small it is in practical terms of availability. Land is zoned here: Area A is entirely Palestinian in its administration and security, Area B is a mix, with Palestinian commercial control but Israeli security, and Area C is completely controlled by Israel, totally off limits for Palestinian use or development. The problem is, Area C is 70% of the West Bank despite being on the Palestinian side of the so-called Green Line, the demarcation upon which peace talks for a two-state solution have always been based. The World Bank says this land contains most of the West Bank’s natural resources and open spaces, and that if Palestine could develop it, the state could halve its budget deficit and expand its economy by a third.

The distinctions between the three areas are not obvious. Asked to explain them, Odeh Awwad, head of sales and marketing at Amaar Group, the real estate arm of the sovereign Palestine Investment Fund, takes a short drive from the Al Reehan residential property development his company has built outside Ramallah. 

"Area A," he says, driving along, before turning right onto an apparently identical road. "Area B," he says, and drives for a further minute to a junction. "Area C." 

Nothing marks the delineations; nothing explains their zoning. But they cause hellish problems if, for example, one wants to build a new town to ease the housing pressures that this zoning has created in the limited available land: even if you find a bit of Area A or B big and appealing enough to build on, if the roads go through Area C – and in particular if the water supply does – then it’s not going to work. That, in turn, makes housing unaffordable in the relatively few places one can build. 

Residents of Ramallah – which, with the best will in the world, is not one of the Middle East’s beauty spots – claim their apartments are getting up to London prices.

Leaving aside the sense of injustice this engenders, it also has practical consequences for banking. Any bank needs collateral, naturally. But under banking laws, nobody can pledge collateral in area C, since legally they don’t have control of it anyway, and even in the other areas registration of ownership is problematic (though new legislation, the Removable Assets Law, should help). "Area C is the biggest imposition," says Shawa. "There is literally 70% of our economy off the grid." He says access to it would allow the economy to "easily, easily double"; while that’s more than the World Bank predicts, the multilateral does say the potential hit of the loss of that land is worth $14 billion.