Four fast-growing Korean American banks dominated the top ranks of Small Business Administration lenders in the Los Angeles area in 1999, according to a Times analysis of agency data, boosting the banks' fortunes and providing a lift to many minority-owned firms.
Hanmi Bank, Wilshire State Bank, Nara Bank and California Center Bank were among the top 10 institutions loaning the most money to Los Angeles County businesses through the SBA's popular 7(a) lending program, according to the analysis, which reviewed SBA lending in the 1990s. Five years ago only Hanmi Bank was in the top 10.
Although few people outside Koreatown would recognize their names, the four lenders outstripped giants Bank of America and Wells Fargo in total dollars loaned to county businesses through the government program. They also surpassed other local ethnic banks and are now among the top 75 SBA lenders nationwide.
(U.S. Bancorp ranked No. 1 in Los Angeles County in 1999 in dollars loaned. Bank of America and Wells ranked 12th and 15th respectively, but were among the top 15 SBA lenders nationwide.)
The four Korean American community banks began aggressively using the SBA program in the early 1990s to raise capital and stimulate the Korean American business community, which was reeling from the recession, the Los Angeles riots and the economic turmoil in Asia.
The government loan guarantee allowed the banks to hedge against the risk of making bad loans during a time of economic recovery. And the program--aimed at small-business borrowers who can't obtain credit elsewhere--was a natural fit for the banks' many first-generation clients, who often lack credit history in the United States and would have little chance to obtain a loan from a mainstream bank.
By the time L.A.'s economy returned to health in the mid-1990s, the banks not only had become experts at SBA lending, but also more and more Korean Americans were lining up to start or expand businesses and share in the prosperity.
"We understand the nature of these small-business owners, and we wouldn't be here without them as our partners," said Steve Park, SBA manager at Hanmi Bank.
The banks' lending officers often speak fluent Korean, putting Korean American business owners at ease. And the officers make repeated visits to the businesses even after an initial loan is made, a practice experts call "relationship banking."
"It's the old adage: We're able to give better service, better care," said Jimmy Bang, SBA manager at Nara Bank. "And a lot of the [bank] mergers recently have given us an edge."
The banks' surge in SBA lending has contributed significantly to the growth of the banks' assets, bank officers say.
The SBA guarantees as much as 80% of the value of each loan, up to a maximum of $750,000. Lenders are able to sell the guaranteed portion in the secondary market, generating money they can use to make more loans. That's particularly advantageous for banks with limited capital.
Overall, L.A.'s seven Korean American banks grew assets at an average annual rate of 22.8% from 1995 to 1999, according to a 1999 study by Korean economists. That pace was better than that of 268 mainstream American banks (18.3%) and 23 Chinese American banks (11.7%) in California.
The effect of SBA lending has been most pronounced at Wilshire State Bank. SBA lending accounted for more than 60% of the bank's total income in recent years because the bank relied heavily on the premiums obtained from selling the guaranteed portions of the loans in the secondary market, said Sungsoo Han, who recently began overseeing Wilshire State Bank's SBA program after managing Hanmi Bank's for 11 years.
Now, he said, the bank is trying to diversify its commercial loan portfolio and has reduced its emphasis on SBA lending.
Hanmi Bank, the largest Korean American bank with about $877.7 million in assets as of June 30, and Nara Bank have grown assets largely through acquisitions and other strategies, although SBA lending has been a big part of their portfolios. Nara Bank recently acquired a bank in New York City and is tapping into that city's considerable Korean American population.
The Korean American banks have benefited in part from improved economic conditions in South Korea since the 1997 Asian financial crisis, which has led to more tourism and investment by Koreans living abroad, said Steve Didion, an analyst at Hoefer & Arnett Inc. The return to health of Southern California's real estate economy also helped the banks grow, Didion said.
"A great percentage of the loans made by these Korean banks and most community banks are somehow related to real estate, whether it's for a purchase, construction or where real estate is a primary source of repayment as collateral," he said.