South Korea’s Jeonbuk Bank Launches Bitcoin-Backed Corporate Loans in Regulatory First

SEOUL — Jeonbuk Bank has become the first South Korean commercial bank to offer Bitcoin-collateralized loans to corporate clients, marking a significant shift in how traditional financial institutions in the country engage with digital assets. The Jeonju-based regional lender began the service this month, utilizing a licensed third-party custodian to hold the pledged cryptocurrency, according to industry sources familiar with the rollout.

The move circumvents a long-standing regulatory barrier. South Korean banking supervisors have historically prohibited banks from directly holding or managing crypto assets due to anti-money laundering concerns and the lack of a clear legal framework for digital asset custody. By outsourcing custody to a regulated virtual asset service provider (VASP), Jeonbuk Bank operates within the boundaries of the Virtual Asset User Protection Act, which took full effect in July 2024.

“This structure — bank originates, VASP custodies — is the only model currently viable under Korean law,” said a compliance officer at a major Seoul-based VASP who requested anonymity to discuss industry dynamics. “It allows banks to test demand without touching the assets themselves.”

Jeonbuk Bank’s product targets small and medium-sized enterprises (SMEs) that hold Bitcoin on their balance sheets but lack access to traditional credit lines. Loan-to-value ratios are capped at 50%, with margin calls triggered at a 65% threshold, terms consistent with global prime brokerage standards. Interest rates start at 6.5% annually, roughly 200 basis points above the bank’s standard corporate lending rate, reflecting volatility risk.

South Korea’s Financial Services Commission (FSC) has not formally endorsed the product but has not moved to block it either. The FSC’s 2023 guidance permits banks to “cooperate” with VASPs on collateral management provided customer assets are segregated and the bank assumes no operational custody risk. Jeonbuk Bank’s partner custodian is understood to be KODA, the digital asset custody joint venture backed by KB Kookmin Bank, though neither party confirmed the arrangement.

The launch comes as South Korea’s crypto market matures. Domestic exchanges processed $3.2 trillion in trading volume last year, second only to the United States, yet institutional financial products remained scarce. The Bank of Korea has been researching a wholesale central bank digital currency (CBDC) since 2022, and the FSC plans to allow security token offerings (STOs) later this year. Jeonbuk Bank’s entry suggests regional lenders, pressured by narrowing net interest margins, are willing to innovate faster than mega-banks.

Global peers offer a mixed precedent. In the United States, Silvergate Bank and Signature Bank built crypto lending businesses before collapsing in 2023 amid deposit runs tied to digital asset exposure. European banks like SEBA and Sygnum operate under full banking licenses with integrated custody. Singapore’s DBS Bank offers crypto-backed loans through its digital exchange. Jeonbuk Bank’s custodian-segregated model more closely resembles the Swiss approach.

Risk managers note the 50% LTV buffer may be insufficient during extreme drawdowns. Bitcoin dropped 75% from its 2021 peak to its 2022 trough. A repeat scenario would trigger forced liquidations, potentially concentrating selling pressure on Korean exchanges where liquidity is thinner than on global venues. The custodian’s liquidation engine and exchange connectivity will determine whether collateral can be sold orderly.

For now, Jeonbuk Bank plans to limit the pilot to 100 billion won ($73 million) in outstanding principal. If delinquency rates stay low, the bank may expand to retail high-net-worth clients and add Ether as eligible collateral. The FSC is expected to issue clearer guidelines on bank-VASP partnerships by year-end, which could accelerate or constrain adoption across the sector.