North Korea is preventing regional commercial banks from setting high interest rates, Daily NK has learned.
A Daily NK source in Pyongyang said on Tuesday that the Cabinet issued “guidelines” on April 9 outlining the direction provincial commercial banks should follow in establishing and modifying their financial plans.
According to the source, the Cabinet’s first quarter financial review revealed that regional commercial banks were excessively or inconsistently setting interest rates on deposits and savings to “guarantee” – i.e. replenish – funds. The guidance letter called for a firm “launch pad” to establish an appropriate management system for state banks.
The source said people “have many opinions” because local commercial banks raise and lower their interest rates and are often at odds with each other. He said the Cabinet blamed inconsistent interest rate policies by local commercial banks for generating public insecurity and creating great inconvenience in people’s financial lives.
The source said the Cabinet calls on provincial commercial banks to follow a “centralized economic and financial system” under the unitary command of the Cabinet, deviating from the “autonomous” management style of the past decade. Banks must now receive Cabinet approval for their interest rates.
This means that the Cabinet blamed the regional commercial banks for generating “dangerous effects” by going in a different direction from the unitary economic management system. In a similar vein, the source said directors of commercial banks in three districts of Pyongyang were arrested earlier this month for “imbalanced banking management” and are being investigated by prosecutors.
In fact, local commercial banks played haphazardly with interest rates, with each bank setting high rates to absorb idle money from the public. When it comes time to pay, they do so with money from public institutions, or by extending deposit and savings periods or by paying interest, not principal.
The Cabinet reacted by deciding to place interest rates – previously determined autonomously by the regional commercial banks – under the management of the unitary state, and to ensure that the banks which set interest rates at the above a state-determined limit assume “legal liability”. This suggests that for all intents and purposes the Cabinet will control the regional commercial banks that have disrupted the economic order with hopelessly excessive interest rates.
However, regional commercial banks say that without high interest rates – the best way to curry favor with potential customers – they have nothing to entice people to use their services. They speculate that if they lower interest rates, local residents who are deeply suspicious of financial institutions will not entrust their local or foreign currency to regional commercial banks.
Many North Koreans reportedly said that while they could take advantage of “advanced” services such as electronic payment cards or bank transfers if they left their money with banks, they had little interest in banks. business beyond their high interest rates, as party and state investigative bodies can sift through private financial information in financial institutions.
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