The report said that bank activities in or with Israeli communities in the West Bank have helped encourage settlement growth and "contribute to rights abuses" against Palestinians. It added that Israeli banks, and international banks doing business with them, may be engaging in pillage, by acquiring ownership interests in housing projects on seized land.
Because of an Israeli law limiting the amount of money developers can collect from buyers in advance, banks often become direct partners in settlement projects, HRW says.
"Most Israeli banks finance or 'accompany' construction projects in the settlements by becoming partners in settlement expansion, supervising each stage of construction, holding the buyers' money in escrow, and taking ownership of the project in case of default by the construction company," the report said.
Israel captured the Gaza Strip, West Bank and eastern Jerusalem in the 1967 Six-Day War. Israel unified Jerusalem and subsequently imposed sovereignty over the eastern half, and sees the city as its indivisible united capital.
It also argues that the West Bank—referred to in Israel by its biblical name Judea and Samaria—is disputed, rather than occupied territory, since the area was captured from Jordan which lays no claim to the land and which was never fully recognized as the sovereign power. It withdrew from Gaza in 2005.
West Bank settlements are now home to around 400,000 Israelis.
Most of the international community considers settlements illegal and an impediment to the creation of an independent Palestinian state. Israel says the fate of the settlements must be resolved in peace negotiations with the Palestinians and blames the failure of peace talks on Palestinian refusal to recognize Israel as a Jewish state and for its leadership's launching or condoning of terror wars against Israel.
Human Rights Watch said Israeli banks didn't respond to requests for comment. The Association of Banks in Israel, an umbrella group representing major Israeli banks, declined to comment on the report.
HRW called on Israeli banks to stop providing services to housing in settlements and close their branches there.
Anne Herzberg, the legal adviser of NGO Monitor, an Israeli non-profit group that critiques foreign nongovernmental organizations, said Human Right Watch's focus on Israel's banking sector was part of its boycott campaign against Israel that aimed "to downgrade the investment profile of Israeli banks."
She also noted that HRW's local director is currently suing the Israeli government against his expulsion order from the country. Omar Shakir says that neither he nor his organization supports boycotts and accuses the government of trying to stifle criticism of its human rights record.
Herzberg said that "this latest report clearly belies those protestations."