Report on the Palestine Banking Corporation (Public Shareholding) Limited

- The SAACB's annual reports are extremely important; they are not limited to the public sector but extend to the public and private economy.... The following report is alarming, because some sectors of public money in the economy are rife with multiple and grim violations, a decline in the spirit of responsibility and concern for public funds, and negligence by the executive administrations, where the Bureau's report indicated confirmed risks of losing an amount exceeding 22 million dollars from the institution's funds....!!..Why?

- It is clear — as the Bureau's report notes, according to its material observations that will follow in its 2021 annual report — that the matter requires activating the principle of accountability and investigation in the mechanism by which the Palestine Banking Corporation granted, to one company (Shuqairat), financings and loans.... and the necessity of activating accounting and investigative procedures for all granted troubled financings.........!

- The State Audit and Administrative Control Bureau conducted an audit inspection of the operations of the Palestine Banking Corporation for the years 2018 and 2019 and earlier years, on specific subjects, and the audit covered several topics including: troubled financings, the institution's investments, the granted financings, the credit policy in force, the follow-up and collection procedures in the institution, the Board of Directors and its sub-committees, and the institution's financial statements...!

- There are confirmed risks of losing an amount exceeding 22 million dollars from the institution's funds, due to the institution granting many financings without obtaining sufficient guarantees to secure its rights, thereby violating the credit policy in force for granting financings.. Consequently, the institution reduced its capital and removed the troubled financings from its balance sheet...!

- The committees emanating from the Board of Directors (the Finance Committee, Settlements Committee, and the Oversight and Audit Committee) did not carry out the tasks entrusted to them; among the most prominent of these tasks was settling troubled files, yet the ratio of troubled financings exceeded 35% of the institution's investment portfolio up to 2019...

- The institution did not activate collection procedures, as a result of granting many financings without obtaining sufficient guarantees to collect the value of the granted financings, and the executive management of the institution's failure to take adequate measures to collect amounts due from clients, relying on some weak guarantees available for some financings.

- The total troubled amounts reached approximately 17 million dollars after the Palestinian Development Fund merged with the institution, including more than 9 million dollars in troubled indebtedness (excluding interest and profit margins) owed by the company Ikhwan Ali Shuqairat, from financings and loans granted to that company without sufficient guarantees to protect the institution's funds..!

- The institution granted preferential financings to related parties, at profit margin rates, terms, and guarantees that violated the credit policy, which may lead to conflicts of interest between the institution's executive management, members of the Board of Directors, and their related parties who received financings from the institution..!

- An amount of 8,876,910 dollars became troubled, representing 35% of the total investment portfolio of the Palestine Banking Corporation, the value of which is 25,596,817 dollars, according to the institution's financial statements for 2019, due to the institution's noncompliance with provisions of the credit policy; likewise, an amount of 7,945,112 dollars became troubled, representing 31% of the Fund's total investment portfolio of 26,027,559 dollars, according to the Fund's financial statements for 2019.

- The institution invested some of its funds without an approved investment policy in activities that do not align with the institution's overall objective, and without a department or committee responsible for investment within the institution's structure; in addition, directing some investments to specific companies connected to representatives of those companies who sit on the institution's Board of Directors, which led to losses and a decline in the value of the invested amounts by approximately 18%... of its investments' value.. amounting to 2 million dollars of the institution's funds.

· (Sources of the institution's funds()

- Most of the institution's and the Fund's funds originate from borrowings from local banks and some Palestinian and international entities and institutions, the most important of which are the Ministry of Finance, the Palestine Investment Fund, the Palestinian Employment Fund, the European Union, the Islamic Development Bank, and the Arab Fund. The balance of liabilities of the Palestine Banking Corporation after the merger exceeded 41 million dollars as of 31-12-2019... Accordingly, the default of many loans and financings granted by the institution and the Fund to clients exposes the Palestine Banking Corporation to the risk of being unable to meet its obligations to its lenders, as well as the risk of lawsuits resulting from breaches of borrowing agreement terms..!

- The amount due from Al-Watan Company for Color Sorting has not been collected since 1997, amounting to 31,000 dollars, which clearly indicates a conflict of interest, since the granted financing was made under the guarantee of a member of the institution's Board of Directors..!!

- Weak internal control measures and organizational matters in the institution (including the absence of registers of mortgaged and repossessed properties in favor of the institution) ...!

- The institution did not settle its tax file with the tax authorities, as it did not remit the tax amounts due resulting from income tax on profits and value-added tax on profits to the public treasury...!

· Effect of merging the Fund into the institution:(

- The merger of the Development Fund into the Palestine Banking Corporation resulted in the Fund's entire portfolio (all assets, liabilities, rights, and obligations) being incorporated into the institution's portfolio, which led to the following:

- The value of the institution's financial year loss became 13,109,047 dollars, due to the Fund's accumulated loss amounting to 8,785,860 dollars for the institution's 2019 loss.

- The institution's liabilities became 41,890,881 dollars, due to the inclusion of the Fund's liabilities amounting to 29,544,984 dollars.

- The value of the provision for expected credit losses on loans and financings amounted to 13,883,231 dollars, due to transferring the Fund's provision for credit losses amounting to 9,641,310 dollars to the institution.

- The value of the institution's assets became 51,373,632 dollars, due to adding the Fund's assets amounting to 20,773,189 dollars to the institution.

- The value of the institution's equity became 9,482,751 dollars due to adding the Fund's capital transfer amounting to 14,065 dollars to the institution..!

- The matter requires activating the principle of serious and responsible accountability and investigation in such violations and negligence... for remediation and future deterrence... and may God grant success..!

Date: 11-8-2022