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Jeonbuk Bank opens South Korea’s first bitcoin-backed loans

Jeonbuk Bank has begun bitcoin-backed won loans for businesses in South Korea, with a third-party custodian holding collateral and court sales planned for defaults.

Uruguay Can Editorial

Jeonbuk Bank opens South Korea’s first bitcoin-backed loans

South Korean banks had not offered bitcoin-backed business loans until Jeonbuk Bank began doing so, giving companies a way to borrow won against bitcoin without selling it. The bank, a subsidiary of JB Financial Group, is the country’s first lender to offer the loans, according to CoinDesk’s report.

The product is limited to corporate customers seeking working capital, and bitcoin is currently the only eligible collateral. CoinDesk reported that a bank official confirmed the first loan had been executed, but did not identify the borrower. Loan amounts, rates, borrowing limits and collateral requirements have not been disclosed.

How does Jeonbuk Bank handle the bitcoin collateral?

A registered crypto service provider holds the bitcoin; Jeonbuk Bank does not take custody or direct control of it. EDaily’s report says the bank will recover its claim through enforcement procedures, including a court-ordered sale, if a borrower defaults. The process works in three steps:

  • 1. A corporate borrower pledges bitcoin held by a specialized custodian.
  • 2. Jeonbuk Bank issues a won-denominated loan for business operating costs.
  • 3. If the borrower defaults, the bitcoin can be sold through enforcement procedures and the bank can recover from the proceeds.

What makes the lending structure possible now?

Revised Civil Enforcement Rules took effect on October 1, setting out procedures to seize and liquidate rights tied to virtual assets, according to EDaily. That gives the bank a recovery route that does not require it to take the bitcoin itself. The custodian must be a registered virtual asset service provider, which is subject to requirements that include segregated custody and cold-wallet storage.

What has Jeonbuk Bank disclosed about risk?

The bank says it ran stress tests on bitcoin as collateral and chose it for its market liquidity. It has also established a valuation system using a weighted average of prices from multiple global exchanges, rather than relying on one exchange’s price, EDaily reported. The bank may review expanding the service as regulation and market demand change, but no broader rollout has been announced.

Sources