North Korean citizens are unable to get bank loans as banks there handle deposit accounts only. The Korea Central Bank runs branches at every city and county, and deposit outlets in villages across the country, each outlet manned by a staff of between two and five.

Citizens making money from livestock raising or sidelines deposit their money with their own village deposit offices. No deposits can be made with the deposit outlets of other villages. Each bankbook has a fixed serial number. To withdraw money from one's deposit, he or she has to produce a passbook, citizenship card and seal as no secret number is used in the North, which is the case in the South. Deposit office staff members, dealing only with the residents of a particular area under their jurisdiction for a long period of time, know very well not only their depositors, but their families as well. When children attempt to draw money out of their parents' passbooks, the staff confirms the action with their parents. It's just unimaginable for strangers to withdraw money from other customers' bank accounts.

Apart from banks in the capital city of Pyongyang where cash flows relatively smooth, bank transactions are dull in the provinces. The village deposit offices, due to the backward management system employed and poor cash flow, often fail to release deposits on demand. A depositor in need of withdrawing a sizable sum of money from a village deposit outlet has to make a special request to the staff to that end. Such inconveniences depositors sustain from their own bank deposits invites many grievances.

Merchants constantly dealing with large sums of money naturally avoid depositing their funds with those banks that are unable to release their deposits when demanded. As vast sums of money are concentrated in the North's border cities with China at the expense of the banks, the North Korean authorities have devised measures to encourage bank savings, including one dubbed "lottery savings." This device calls for holding public lotteries quarterly, and awarding a first prize winner prize money corresponding to 100% of their deposited principal, a second prize equivalent to 80% of the same, and a third prize of 50%. Lottery prizewinners numbered 123 during the first quarter this year. The bank interest rate is 3% per annum.

Despite such efforts of the authorities, bank deposits remain sluggish in the North and their main customers are housewives who are saving money in preparation for ceremonial occasions such as marriages and funerals.

Public agencies and business establishments maintain close relations with the financial institutions and companies obtain bank loans against their pre-set annual budgets, settling accounts at the year's end. If upon concluding their business activities for the pertinent year, they fail to pay back their bank loans as agreed upon, companies get their next year's budgets reduced, and, in the worst case are rendered unable to even pay salaries to their staff. Financial transactions between business establishments or between companies and banks are all done in checks.

North Korea now has about a dozen banks and among them are the Korea Central Bank, the Korea Trade Bank in charge of external financial transactions, and the Korea Daesong and Kumgang Banks, engaged in particular sectors. In the 1990s they established some joint ventures with foreign interests such as the Hong Kong-based Ruby Holdings and Pedigree, and ING of the Netherlands, all of which are said to be having management difficulties.

(Kang Chol-hwan, nkch@chosun.com )