ARAB BANK MOVES TO REDUCE RISK IN THE EVENT OF A

C O N F I D E N T I A L AMMAN 001790 SIPDIS SIPDIS E.O. 12958: DECL: 03/07/2016 TAGS: EFIN ECON KWBG KPAL KTFN JO SUBJECT: ARAB BANK MOVES TO REDUCE RISK IN THE EVENT OF A HAMAS-LED PA; AWAITS USG GUIDANCE REF: A. AMMAN 1405 ¶B. AMMAN 1599 Classified By: Ambassador David Hale for reasons 1.4 (b,d). ¶1. (C) SUMMARY: Arab Bank, Jordan's largest bank and the largest provider of banking services in the West Bank and Gaza, has been steadily lowering the amount of credit it offers the Palestinian Authority (PA) since the Hamas parliamentary victory. In anticipation of a worst-case scenario with banks being required to sever ties with a Hamas-led PA, Arab Bank is continuing its credit draw down, eliminating all lines of credit to the PA in the next two weeks. The bank is awaiting a response to its request for USG guidance regarding planned financial sanctions (ref A) against the PA. Arab Bank,s scenario plans only for sanctions on accounts held directly by the PA - not on those held by municipalities or utilities (ref B). END SUMMARY. ¶2. (C) In a March 5 meeting with the Ambassador, Arab Bank CEO Abdel-Hamid Shoman summarized the steps Arab Bank is taking to reduce its exposure in the Palestinian territories in the event that a Hamas-led PA leads to international sanctions against banking services. Shoman said Arab Bank has been "progressively" lowering the overdraft privileges it offers the PA. This line of credit is most commonly used to pay salaries for PA employees at the end of each month, and is collateralized by government-owned stock shares and cash. While the collateral is still available, Arab Bank has told the PA that it must reduce the credit the Bank offers to reduce its risk in "the event that Hamas takes over." ¶3. (C) Shoman said the line of credit has been reduced to 50 million USD, and a majority of that amount has been shifted to loans. To date, two loans have been "booked": one in London, and one in Arab Bank's branch in Ramallah for which the PA is already on an installment payment schedule. According to Shoman, Arab Bank plans to continue its draw down, closing all open lines of credit "in the next two weeks." ¶4. (C) Shoman reiterated Central Bank of Jordan Governor Touqan's comments that the amount of capital at risk is not the Arab Bank's major concern. Rather, Shoman cited his desire to "avoid a humanitarian crisis," as well as the perception by the man in the street that Arab Bank is the enemy, if the bank has to stop operations completely. Shoman said Arab Bank provides banking services for over 60% of Palestinians in the West Bank and Gaza, and emphasized the sensitive position in which it finds itself. According to Shoman, eliminating all lines of credit at once is not an option; that is why the bank "is taking a staggered and orderly approach" to eliminating credit facilities to the PA at this early stage. ¶5. (C) When asked if he was also considering the accounts held by Palestinian municipalities or public utilities to which the PA is a customer, Shoman said he was not and asked whether he should. The Ambassador replied that he would share guidance with Shoman as soon as it emerges. ¶6. (U) Read all of Amman's Classified cable traffic at http://cables.state.sgov.gov/ncddos/cable/cou ntry/JOR/ home.html. HALE