Palestine Monetary Authority Instructions No. 5 of 2022 on Mandatory Cash Reserves

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Palestine Monetary Authority PALESTINE MONETARY AUTHORITY

Instructions No. (5) of 2022 Regarding Mandatory Cash Reserves

Based on the provisions of Legislative Decree No. (9) of 2010 concerning Banks, particularly Articles (42) and (72) thereof, in accordance with the powers delegated to us, and in pursuit of the public interest, we have issued the following Instructions:

Article (1) Definitions

The words and phrases appearing in these Instructions shall have the meanings specified below, unless the context indicates otherwise:

Mandatory Reserve Ratio:	The percentage determined by the Palestine Monetary Authority from customer deposits at the bank.
Mandatory Reserve:	The reserve required from the bank in all currencies, calculated based on the product of the mandatory reserve ratio, the reserve base, and dormant balances.
Reserve Holding Period:	One calendar month starting from the 10th of the month following the reserve calculation period.
Circulating Currencies:	US Dollar, Jordanian Dinar, Israeli Shekel, and European Euro.
Other Currencies:	Currencies other than circulating currencies, valued in US Dollars according to the monthly valuation price bulletin issued by the Palestine Monetary Authority at the end of each month.

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1 www.pma.ps Ramallah and Al-Bireh Governorate - Palestine P.O. Box 452 | Tel: +970 2 2415251 | Fax: +970 2 2415310 | info@pma.ps Gaza - Palestine P.O. Box 4026 | Tel: +970 8 2825713 | Fax: +970 8 2844487

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Article (2) Objective and Scope of Application

1. The provisions of these Instructions aim to define the mandatory reserve requirements on customer deposits.
2. The provisions of these Instructions apply to all banks licensed by the Palestine Monetary Authority to conduct banking business in Palestine, excluding digital banks and microfinance banks.

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2 www.pma.ps Ramallah and Al-Bireh Governorate - Palestine P.O. Box 452 | Tel: +970 2 2415251 | Fax: +970 2 2415310 | info@pma.ps Gaza - Palestine P.O. Box 4026 | Tel: +970 8 2825713 | Fax: +970 8 2844487

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Article (3) Mandatory Reserve Base

1. The mandatory reserve base shall be calculated based on the sum of deposit balances and account balances in circulating and other currencies at the end of each working day during the month, divided by the number of working days in the month, for each of the following: a. Deposits in current, demand, savings, time, and call accounts, as well as any other deposits or customer claims regardless of their designation at the bank. b. Cash collateral. c. Frozen balances. d. Credit balances in debit accounts. e. Dedicated investment accounts or certificates. f. Certificates of deposit and debt instruments issued to customers. g. Digital wallets for customers and non-customers. h. Unqualified supporting loans. i. Balances available in prepaid debit cards for customers and non-customers. j. Shareholder receivables arising from undistributed dividends.
2. The following are excluded from the mandatory reserve base: a. Bank deposits, Palestine Monetary Authority deposits, and Palestine Deposit Insurance Corporation deposits. b. Amounts that the Palestine Monetary Authority permits to be deducted from the reserve base pursuant to its issued instructions. c. Electronic money guarantee account in accordance with prevailing instructions.

Article (4) Dormant Balances

Dormant balances include unclaimed balances and amounts where owners cannot be identified, such as remittances, balances against bank checks, suspended balances where owners cannot be identified, inactive accounts, deceased accounts, and any other balances where owners cannot be identified in accordance with the provisions of prevailing instructions.

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3 www.pma.ps Ramallah and Al-Bireh Governorate - Palestine P.O. Box 452 | Tel: +970 2 2415251 | Fax: +970 2 2415310 | info@pma.ps Gaza - Palestine P.O. Box 4026 | Tel: +970 8 2825713 | Fax: +970 8 2844487

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Article (5) Calculation Mechanism

1. The bank shall calculate the mandatory reserve as follows: a. 9% of the mandatory reserve base. b. 100% of dormant balances.
2. Differences in the mandatory reserve shall be handled subsequently according to the valuation price bulletin issued by the Palestine Monetary Authority at the end of each month.
3. The mandatory reserve holding period shall be one month starting from the 10th of the month following the reserve calculation period.

Article (6) Settlement Account at the Palestine Monetary Authority

1. The Palestine Monetary Authority shall allocate 20% of the mandatory reserve, according to the calculation mechanism stipulated in paragraph (a) of Article (5) of these Instructions, and record it in an account called the settlement reserve, which is designated to cover clearing and settlement results. The settlement account shall be subject to the mechanisms and instructions of the Real-Time Gross Settlement (RTGS) system.
2. The percentage stipulated in paragraph (1) of this Article shall remain an integral part of the mandatory reserve, and a compliance period of one week shall apply to it, starting every Thursday (the first day shall be considered the first day of the compliance period). The Thursday closing balance shall be carried forward to the following two days, considered as the weekend.
3. Except for the settlement reserve, the bank shall not dispose of the mandatory reserve held at the Palestine Monetary Authority.
4. The bank is permitted to utilize the settlement reserve balance at the Palestine Monetary Authority in accordance with prevailing instructions.
5. The bank is permitted to transfer any amounts exceeding the settlement reserve balance at the Palestine Monetary Authority to its accounts with its correspondents on the same day.
6. Settlement reserve account balances shall be used for daily payment settlement operations between banks.
7. The bank must ensure that the daily average balance for the compliance period does not fall below the specified percentage.
8. The daily average balance in the settlement reserve account for the compliance period shall be calculated by taking the arithmetic average of the daily closing balances for the compliance period.

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4 www.pma.ps Ramallah and Al-Bireh Governorate - Palestine P.O. Box 452 | Tel: +970 2 2415251 | Fax: +970 2 2415310 | info@pma.ps Gaza - Palestine P.O. Box 4026 | Tel: +970 8 2825713 | Fax: +970 8 2844487

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Article (7) Reports, Data, and Coverage

1. The bank shall calculate the mandatory reserve in accordance with these Instructions and the prescribed form, and submit it no later than the 5th day of the month following the reserve calculation period.
2. The bank bears responsibility for the accuracy of the data disclosed in the mandatory reserve statements, and is committed to providing what is necessary to conduct required reconciliations whenever needed. Providing false/inaccurate data to the Palestine Monetary Authority regarding the mandatory reserve and its calculation method shall be considered a violation subject to the imposition of necessary fines against the bank in accordance with the law.
3. The mandatory reserve shall be covered on the 10th day of the month following the calculation period.
4. If the 10th day of the month falls on a holiday in the currency's country, the deduction or addition shall be made on the following working day.

Article (8) Recording of Mandatory Reserve

1. The mandatory reserve shall be recorded according to the statements received from each bank to/from the bank's account at the Palestine Monetary Authority.
2. Differences in the mandatory reserve shall be transferred as a deduction from/addition to the bank's current account at the Palestine Monetary Authority on the 10th day of the month following the month to which the reserve pertains.
3. The bank whose current account is overdrawn as a result of transfers shall be fined at a rate of one per thousand daily on the overdrawn account balance or the balance below the minimum.
4. The Palestine Monetary Authority shall not pay any interest on mandatory reserve balances.

Article (9) Penalties

Any person who violates the provisions of these Instructions shall be punished in accordance with the provisions of Legislative Decree No. (9) of 2010 concerning Banks.

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5 www.pma.ps Ramallah and Al-Bireh Governorate - Palestine P.O. Box 452 | Tel: +970 2 2415251 | Fax: +970 2 2415310 | info@pma.ps Gaza - Palestine P.O. Box 4026 | Tel: +970 8 2825713 | Fax: +970 8 2844487

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Article (10) Repeal of Conflicting Provisions

1. Paragraph (4/5) of Instructions No. (2008/5) concerning Capital, Reserves, Facilities, Investments, and Financial and Banking Indicators is repealed.
2. Circular No. (2010/67) concerning the Management of Settlement Accounts at the Palestine Monetary Authority is repealed.
3. All provisions conflicting with the provisions of these Instructions are repealed.

Article (11) Implementation and Enforcement

All competent authorities shall, each within their respective purview, implement the provisions of these Instructions, which shall apply starting from the October 2022 reserve.

Issued in Ramallah on 19/10/2022.

Dr. Fares Malham Governor [Signature]

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5 www.pma.ps Ramallah and Al-Bireh Governorate - Palestine P.O. Box 452 | Tel: +970 2 2415251 | Fax: +970 2 2415310 | info@pma.ps Gaza - Palestine P.O. Box 4026 | Tel: +970 8 2825713 | Fax: +970 8 2844487