South Korea Enters Bitcoin-Backed Loan Market

Introduction

Jeonbuk Bank, a regional South Korean lender, has made a significant move into the world of cryptocurrency-backed lending. The bank has launched a new product that allows corporate clients to borrow Korean won using Bitcoin as collateral.

How the Loans Work

The loans are restricted to corporate clients and are meant for business operating funds, covering payroll, suppliers, and other essential expenses. The bank works with qualified virtual asset service providers to custody the Bitcoin, ensuring compliance with local regulations such as the Virtual Asset User Protection Act and ISMS certification.

Valuation and Lending

Jeonbuk Bank prices the collateral using a weighted average of prices from multiple global exchanges, factoring in volatility medians and running stress tests. The bank's role is narrower, focusing on valuation and lending, while the custodians handle the management of the Bitcoin.

Recovery in Default

In the event of a default, the recovery process runs through court-ordered auctions under the revised Civil Execution Rules, which took effect on October 1, 2026. This ensures that the bank can recover value from seized digital assets without simply transferring them.

Implications for Korean Banking and Crypto

The launch of this product has significant implications for Korean companies holding Bitcoin, as it provides a new way to access cash without having to sell their holdings. Jeonbuk Bank may eventually expand the product to a wider range of clients and accept other digital assets, depending on demand and regulatory frameworks.