Several of the institutions that make up the once-vibrant segment of Korean/American-owned banks in Los Angeles—a group that has provided financing for everything from Downtown garment shops to developments in Koreatown—are now facing uncertain futures because of their broad exposure to the ailing commercial real estate market.
That assessment came in a report in the June 22 edition of the Los Angeles Business Journal, which noted that the number of Korean/American banks based in the Los Angeles area more than doubled, to a total of 15, during the boom years that preceded the current recession. The weekly publication reported that several of the largest Korean/American financial institutions, including several with branches in the Fashion District, each hold several billion dollars of commercial real estate loans that make up approximately 70% of their portfolios. The downturn in the real estate market—which many analysts say has recently spread from the residential sector to commercial holdings—makes several of the larger Korean/American banks “among the most heavily exposed in the entire country,” according to the Business Journal. The level of exposure is approximately five times the national average of 15%, according to officials of the Federal Deposit Insurance Corp. which has regulatory oversight on banks.
Several of the Korean/American banks have begun taking steps to shore up their situations, according to the Business Journal. Center Financial Corp. has sold off $91 million worth of its commercial real estate portfolio, according to the report, and Hanmi Bank is believed to have recently raised $11 million in new capital from a brokerage firm in South Korea.
Hanmi made the move under orders from federal regulators, and there has been recent speculation that the South Korean brokerage firm could join another company to acquire the bank, according to the report.
The Business Journal also reported that some representatives of Korean/American banks have expressed confidence about their long-term prospects because many of their commercial real estate loans have been made to small business, which have shown greater resilience in facing previous recessions in the U.S.
The report noted that 60% of Hanmi’s commercial real estate loans have gone for owner-occupied properties.
That still leaves plenty of exposure, though. An example of owner-occupied commercial real estate can be found in the Fashion District, where many Korean/American garment manufacturers operate from showroom and distribution centers that are sold as commercial condominiums.
The economic slump has not spared the local garment trade, even as new commercial condominiums have gone up along San Pedro Street in the Fashion District, a center of the Korean/American segment of the industry. The local garment trade remains a major center of the industry in the U.S., however, and some companies are thriving in the face of the recession thanks to unique product and other factors (see related story, “Can Entrepreneurs Beat Bad Economy?” Crime Report; photo and caption, home page; “Local Hero, home page; Commentary, home page).
