IMF says PMA not a central bank yet

QUESTION: I did not think you mentioned the work of the Palestine Monetary Authority in your remarks, and I wonder if you could say a few words about how you assess that, how effective it is, and are you working with them on institution building and which areas need strengthening?

MR. NASHASHIBI: Yes. We've been working quite closely with the Palestinian Monetary Authority. Immediately, we've had some relief, that, in fact, there was the confidence in the banking sector remained. The Arab Bank, in particular, had a policy of opening, when curfews were lifted for two hours, they would open even on holidays. So anyone could always withdraw cash, and this actually cemented the confidence of the public into the banking system.

But then, of course, a lot of people could not repay their loans, so nonperforming loans rose to 26 percent of total assets. So that was quite worrisome. And what we concentrated on with the governor, Dr. Amin Haddad of the PMA, was on bank supervision and how to manage the need for provisioning and applying the Basel Principles in a situation of crisis and liquidity crunch.

Adam, maybe you'd like to add something.

MR. BENNETT: Maybe I should just add something. The nonperforming loans did reach I think 29 percent, but these are the ratio of nonperforming loans to total loans. In fact, in relation to the bank's total assets, they were relatively small because the banks have been pursuing extremely conservative lending policies. And a large portion of their assets were liquid assets held outside and abroad. So that's one of the reasons why the banks, where they suffered on their own loan portfolios, they didn't suffer as a whole.

And the other area that I think is worth mentioning with regards to PMA is that they have been making good progress in developing the capacity to undertake banking supervision, and to the extent that they can in the present situation, they do that. But they're not a central bank yet in that their role really is, at the present time, confined to banking supervision and also the holding of required reserves to banks operating in those territories, and there's a balance sheet actually in the report which is for your own information.