Israeli banks are contributing to the proliferation of West Bank settlements by providing loans and mortgages for construction there, violating their human rights obligations, Human Rights Watch said in a report yesterday.

The report said that Israeli law does not require banks to provide such services to the settlements, and urged them to distance themselves from such activities. It also urged the banks' shareholders to "ensure that their business relationships do not contribute to or benefit from" human rights violations.

Human Rights Watch says the banks have helped the expansion of the West Bank settlements, which are now home to some 400,000 Israelis. Sari Bashi, the group's Israel and Palestine advocacy director, said the banks should abide by the U.N. guiding principles on business and human rights, a set of non-binding guidelines meant to address and remedy abuses committed in business activity, or else face action by shareholders.

"There are many, many steps banks can and should take to at the very least reduce their involvement in settlements, if not stop it entirely," she said. "If they choose not to take steps, institutional investors who care about their own human rights activity should take action."

Israel captured the West Bank, along with the Gaza Strip and east Jerusalem, in the 1967 Mideast war. Israel has since annexed east Jerusalem in a move that is not recognized internationally, and it withdrew from Gaza in 2005. Most of the international community considers settlements illegal and an obstacle to creating a Palestinian state.

Israel's banks lend money to homebuyers, settlement councils or to companies carrying out construction in the West Bank. Most also have branches in settlements. Israeli law requires banks to accept settlers as customers, meaning they cannot refuse to open accounts for them. But a legal analysis by Human Rights Watch of Israeli banking laws concluded that banks are not obligated to provide financial backing for construction in the West Bank.

While an anti-discrimination law prohibits refusal of service based on place of residence, the report said banks could cite other reasons for declining to provide loans, such as the construction's implications for Palestinians' human rights. The law also allows companies to decline to serve certain areas so long as they provide advance notice to customers.

"It is Human Rights Watch's assessment that banks can, under domestic law, avoid providing many services that support settlements and settlement activity, and that doing so is necessary to fulfill their human rights responsibilities," the report said.