Banking on North Korea’s Banks?

Observers of North Korean domestic developments will remember 2016 as the year that Kim Jong Un further formalized his political preeminence by convening the 7th Congress of the Workers’ Party of Korea (WPK) in May and later creating a new supreme decision-making institution, the State Affairs Commission (SAC). The year’s significance to the nation’s economy, however, has been more nebulous. Scant details have emerged since the Party Congress about the Five Year Plan for economic development announced there, and 2016 has been marked by rather orthodox campaigns to increase production. Though the North’s market economy continues to gain relevance, it faces external hindrances and a lack of policy experimentation compared to 2010-2013. That period saw a range of changes in a variety of sectors, though since then the pace of experimentation has slowed down. The banking sector is one where change is still afoot, however, and merits attention. Relative to other prospective reforms, the leadership appears likely to make further changes to this system in order to spur more sustainable economic growth.

Economic Futures

The leadership of the DPRK certainly realizes that over the next five years their international environment could develop in several different ways—and most of the scenarios would have a negative impact on economic growth and exports. Sanctions could increase, China’s economic slowdown could continue, or other consumers of North Korean goods could abandon traditional partnerships with the DPRK in response to South Korean and US diplomatic pressure. Although it is possible that a breakthrough on the nuclear issue could ease international pressure, Pyongyang cannot count on such a long shot coming to pass. As such, it makes sense for the country to keep its goals vague.

It is probably unclear—even to the leaders themselves—to what extent they will incorporate the market economy into official plans for growth. Their policy steps after the Party Congress assumed a decidedly traditionalist tenor with the June commencement of a 200-day “speed battle,” a competitive, Stakhanovite, nationally mandated program of overtime and additional work.[1] This battle followed directly on the heels[2] of a 70-day speed battle that was started in February and lasted until just before the Party Congress. While this grueling work schedule[3] may provide tangible boosts in some sectors, it does little to solve the bottlenecks or key shortages of capital investment that are major inhibitors of growth.

If the international environment shapes how the leadership in Pyongyang makes economic promises and policies, what room is there for more reform in the current context? UN, US and ROK sanctions are challenging the DPRK’s economic growth streak of recent years. Facing external pressure, leaders in Pyongyang recognize it will be harder than ever to attract capital and investment from abroad. In theory, they could help alleviate this by improving protection of property rights and access to information and communication tools. However, they have found this hard to do. Some experimentation with greater information access happened between 2010 and 2013 and more companies and organizations appeared to get online, but they still faced serious restrictions.[4] Moreover, property rights also remain politically sensitive; while there is a very active grey market, formal property ownership rights extend only to two apartment blocks in the Rason Special Economic Zone.[5] In both of these areas, concerns over security and stability appeared to supersede any interest in reforms that could spur economic growth. Banking, then, is perhaps the only consequential economic sector poised for potential near-term change. Indeed, that change is underway.

Domestic Banking and Idle Funds

In a way, North Korea is taking it back to the 2000s, when they began trying to strengthen the lending functions of banks by encouraging them to attract depositors. In 2004, the DPRK Central Bank Law was passed, followed in 2006 by the DPRK Commercial Bank Law. The latter was supposed to codify rules for two-tier banking and allow “commercial banks to positively mobilize idle funds, for which they can take savings.”

Unfortunately, a lack of expertise and commitment hindered progress. Kim Jong Il was primarily focused on the nuclear program and attendant diplomacy, and then suffered ill health in 2008. The 2009 currency revaluation then shattered any faith that North Koreans had in their banking system, prompting most to keep as much of their savings as possible in foreign cash. Recovering the trust of potential North Korean depositors has been an ongoing, years-long project, but the country has steadily trained them to believe in banking again.

This has been no easy task. Re-establishing trust in non-cash financial products may have begun with cash cards, which are now available in competing versions and accepted widely in Pyongyang and elsewhere.[6] Such cards are not linked to bank accounts, but they have helped citizens become used to reliable, non-cash transactions. Cash still remains king for most people,[7] and many in Pyongyang and elsewhere have Narae or other cash cards but no bank accounts.

Ultimately, though, banks will need to attract deposits for the commercial banking sector to function. To this end, North Korean financial institutions have competed for retail customers since at least 2012, when the DPRK’s Civilian Cooperation Bank reportedly offered interest rates ranging from 1 percent for general deposits to 9 percent for 10-year deposits.[8] Chinmyong Joint Bank, which ran a booth at the 2016 Pyongyang Spring International Trade Fair, offered interest rates of 2 percent on three-month deposits, 3 percent on six-month deposits and 7 percent on one-year deposits.[9] These are extremely high rates, arousing skepticism among foreign observers that such returns could possibly be paid out.

Possibly in another bid to attract deposits, North Korean banks have improved their use of technology. Retail financial products now include a mobile app that allows payments and top-ups on the go. Corporations appear increasingly reliant on banking and companies have received access to an electronic fingerprint verification system for ensuring secure transfers between one another.[10]

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.

Much remains to be done. The central bank has limited experience managing a banking sector, and the experience of most North Korean bank employees is in many cases limited to being transaction service providers, catering to trading companies that conduct foreign transactions. Moving forward, it will be crucial for these bankers to properly set rates and ensure reliable and transparent practices in an economy known for exactly the opposite. Technocrats realize the high stakes in this sector, but if managed properly, North Korea’s banks could help improve the functioning of the economy. This may contribute to the sense that the country can put off other key reforms.[13]


Under Kim Jong Un, the economy has grown and North Korea’s quality of life has improved. His personal brand is very much connected to the economy, and Pyongyang is reluctant to experiment with rules that could disrupt social order or minimize asymmetric advantages it holds over its enemies by having most of its systems offline. Fortunately, though the pace of economic experimentation has slowed significantly since 2013, no significant rollback of prior changes has taken place.[14]

Facing a tougher external environment, Pyongyang is responding by trying to invigorate the domestic banking sector. It will be important for observers to pay attention to this sector, and it will be even more important for government officials to regulate and communicate with stakeholders. Such communication is necessary to ensure the development of effective management, as well as trust in banking institutions among North Korean citizens.

  1. [1]

    Speed battles are intended to increase production, and individuals are constantly exhorted to work harder and longer for the accumulation of a socialized surplus.

  2. [2]

    This last happened in 2009, during which two back-to-back speed battles lasted for 150 days and 100 days respectively.

  3. [3]

    The second speed battle appeared to be less intense than the first. By late April, reports from various sectors suggested that North Korean workers were suffering from exhaustion as a result either of long hours at main jobs or of mobilization for after-hours work.

  4. [4]

    North Korean firms seeking Internet access usually have to register in advance for time at a connected terminal, and they are limited in what they can view. Organizations still tend to have a single email address for the entire staff and one international phone/fax line for the company. North Korean companies rarely have websites. North Korean mobile phones cannot be called by foreigners; nor is the reverse possible. This appears to be the degree of communication that North Korean authorities have deemed to be secure enough.

  5. [5]

    Andray Abrahamian, The ABCs of North Korean SEZs (US-Korea Institute at SAIS, Johns Hopkins University, 2014) 25.

  6. [6]

    These cards can be loaded up with hard currency or DPRK won (depending on the card) and used at restaurants, shops and other outlets. The most ubiquitous of these is the Narae card.

  7. [7]

    A recent Choson Exchange interlocutor noted that KKG Bank—formerly—was “especially popular, as you can draw your funds out at any time.”

  8. [8]

    “North Korean banks: how do they calculate interest?” (in Korean), Radio Free Asia, August 28, 2012,

  9. [9]

    “N. Korea offers high interest rates on deposits to secure funds,” Dong-A Ilbo, June 3, 2016,

  10. [10]

    It appears as if usually only one person, the accountant, is allowed to do many transfers, creating a bottleneck if that person is traveling or mobilized for state work.

  11. [11]

    Most notably, Kim Il Sung University added a finance college in 2010 and courses on finance and accounting have been added to other universities as well.

  12. [12]

    “Mobilization of Idle Funds Emphasized for Fiscal Expansion,” IFES NK Brief, June 18, 2014,

  13. [13]

    Indeed, this is where the issue of property rights meets banking. Part of the state’s worry about “idle funds” is that savings among the wealthy are going informally into property speculation. If a family invests its accumulated capital in property, the state considers it largely unproductive. It may well stimulate activity in construction-related industries, but not in infrastructure or development in sectors the state considers important. See Kim Bo-geun, “North Korean real estate market: sustained boom, or bubble?” Hankyoreh, April 11, 2015,

  14. [14]

    This may not quite be the case in the agricultural sector.

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