South Korea Issues First Traditional Bank Loan Backed by Bitcoin

The loans use third-party custodians to hold bitcoin and rely on court-ordered sale if borrowers default.

Jeonbok Bank has begun offering bitcoin-backed loans to corporate customers, becoming the first bank in the country to allow companies to borrow cash against their crypto assets.

Bank of South Korea, a unit of JB Financial Group, will issue loans in the country's fiat currency, the Korean won, with income limited to business operating expenses, local news site Edaily reported.

A Jeonbuk Bank official confirmed to the local Jaekyung Ilbo branch that a loan has already been executed, but declined to name the borrower.

Currently only $84,155.39 Bitcoin Bitcoin Bitcoin can be used as collateral for these loans. Jeonbuk Bank itself will not hold the BTC and instead, a registered crypto service provider will hold the assets while the bank issues the loan.

If the borrower fails to repay, the bank will take court-ordered steps to recover its money by selling bitcoins.

The process is based on the revised Civil Enforcement Act, which came into effect on October 1. These changes establish legal procedures for the seizure and sale of rights related to digital assets.

The bank conducted its own stress test to assess how Bitcoin would hold up during a sharp price drop and chose Bitcoin based on its deep liquidity, allowing for withdrawals when needed.

The service matches a South Korean bank's offering with the broader trend of bitcoin-backed lending becoming a major source of credit.

The report did not disclose loan rates, loan limits or collateral requirements, although Jaekyung Ilbo reported that the bank considered loan-to-value ratios and margin thresholds for major tokens, including bitcoin and ether, when designing the product.

Jeonbuk Bank can expand this service based on market demand and changes in cryptocurrency regulations. The new offer comes after the bank's CEO Park Chun-won said earlier this year that the lender would offer the country's first crypto-backed loan.

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