A South Korean bank now lends won against bitcoin, a first for the country, and a court would sell the coins if a borrower defaults

South Korea has its first bank loan backed by bitcoin. Jeonbuk Bank, a regional lender owned by JB Financial Group, has started offering won loans to companies that pledge bitcoin as collateral, the Korean outlet Edaily reported on Monday, October 12.

The product is narrow. Only corporate customers can apply, the money can be used only for working capital, and bitcoin is the only asset accepted. A bank official said one loan has been executed and did not name the borrower, CoinDesk reported, citing the Korean outlet Jaekyung Ilbo.

The bank never takes hold of the coins. They sit with a specialist custodian, which must be a registered virtual asset service provider. If a borrower defaults, the bitcoin would be sold through a court-ordered process and the loan repaid from the proceeds. Edaily said that route rests on amended Civil Enforcement Rules, in force since October 1, which set out how rights to crypto assets can be seized and sold.

The bank chose bitcoin because it is the largest and most heavily traded crypto asset, and its own stress tests found it held up as collateral in sharp price falls, according to Edaily. It values the collateral using a weighted average of prices from several global exchanges.

Much is still unknown: the interest rate, how much a company can borrow against its coins, and when the bank would demand more collateral. The bank will consider widening the service depending on regulation and demand.