North Korea is working again on its financial sector and making banking facilities available. Andray Abrahamian on 38 North writes up a report on it, but one passage really caught my attention:
Interest in the financial sector has generally grown under Kim Jong Un, as more students and delegations have been sent abroad to explore issues related to banking, and relevant domestic education has increased.[11] Also in the last couple of years, North Korean media have made a rhetorical return to the mid-2000s by lamenting the wastefulness of “idle funds.” As The Kim Il Sung University Gazette noted in 2014:
Some of the funds that are being circulated in the market have strayed away from the normal production process and distribution passage and remain harbored in the hands of organizations, enterprises, and people … mobilization of idle funds shall meet the funding needs of the state and serve as a source of supplementary income to increase state revenue.[12]
The last sentence implies a key risk: if banks in the DPRK take deposits to fund loans, those loans have to perform. If banks are forced to make loans to economically non-viable state projects, depositors could lose out, quickly undermining the process of banking-sector development. Despite this potential pitfall, greater regulation and formalization of the system of deposits and lending would be a positive step. Informal financing currently dominates the commercial loan market with little guidance from the state and interest rates can surpass 15 percent. By offering formal loans that are cheaper, North Korea’s banks could help drive growth.
The bold is actually mine, not Andray’s. He sees a risk of one sort, but I see another: banks traditionally serve the needs of the customers and use their custodianship of their customers’ funds as an opportunity to make money through their own investments of those funds while in their custodianship. But the sentence that bothers Andray clearly indicates the purpose of the bank has shifted from serving the customer to serving the North Korean state, which almost certainly, in practical terms, will devolve to the Party as well. At a more basic level, and using my favorite lens, this change in purpose will also imply a change in the optimization of the methods of the bank – meaning that presence and supremacy of the needs of the State will almost certainly not benefit the customers.
If, at some point, the customers conclude that the costs outweigh the benefits, then the bank will be defunded by the customers, those late to the conclusion will lose everything, and the bank will implode.
This, of course, comes from someone with little knowledge of the North Korean situation on the ground. It just seems likely from general principles observed here in the West.
