Asian Powerhouses of Banking.

Dozens of Chinese, Korean Institutions Thriving in Shadows

THEY'RE small and low profile, but for the most part hugely successful.

Their customer base is affluent and well educated; Their earnings are climbing -- in many cases, soaring.

They're the Chinese and Korean banking institutions of Los Angeles, dozens of them. And despite their enviable niches, these institutions remain autonomous and relatively immune from the waves of consolidation that have swept the rest of the financial landscape in recent years.

Mainstream institutions like Bank of America and Wells Fargo Bank, as much as they might want to snatch one or more of these gems, are unlikely to successfully integrate the tightly knit, ethnically based corporate cultures.

And although they're little known to the majority of Angelenos, ethnic Chinese and Korean banking institutions constitute a formidable presence in their respective L.A.-area communities.

Despite the good times, however, outside forces are pressing upon these ethnic banks, pushing them to evolve and adapt. Immigration flows into L.A. from Korea and Taiwan are slowing down and the U.S. economy is showing signs of softening, forcing these traditionally insular institutions to reach beyond their own communities.

"We don't want to be judged just as an ethnic. Chinese bank," said Dominic Ng, chairman and chief executive of East West Bancorp, which with around $2.3 billion in assets makes it the largest of the Chinese and Korean banks in town. "We're getting business with ethnic Chinese because we have great contacts in the Western business community, and we're getting business with Western firms because we have connections in the Chinese community."

East West has so far distinguished itself by growing at such a rapid pace that, once the pending acquisition of Imperial Bancorp by Michigan-based Comerica Bank is finalized, it will trail only City National Corp. in the ranks of the largest L.A.-based independent banks, in terms of assets. (Sanwa Bank California is a bit larger than City National, but is controlled by Japan's Sanwa Bank Ltd.)

Not far behind is Cathay Bank, while GBC Bancorp, parent of General Bank, and Chinatrust Bank (USA) are all among the top 15 banks in Los Angeles County. All three are Chinese community banks, although Chinatrust is wholly owned by Taiwanese bank Chinatrust Commercial Bank.

Together these banks, along with UCBH Holdings Inc., parent of United Commercial Bank, which is based in San Francisco but has a significant and growing presence here, handle the lion's share of banking activity in the Chinese community All are thriving (although Chinatrust USA isn't publicly traded, so financial information for it is slight), with double-digit earnings growth-and strong share prices.

While all four banks remain relatively small, with net incomes of between $6 million and $12 million for the third quarter ended Sept. 30, those earnings are growing rapidly.

East West's third-quarter net income was up 26 percent from the year-ago quarter. Cathay Bank's was up 45 percent, General Bank up 34 percent, and UCBH up 22 percent.

"They are my favorite banks," said Campbell Chaney, banking analyst at Sutro & Co. "The market that they are targeting is very good for community banks. It's a fast-growing population, the most affluent population. Many are first- and second-generation, many are college educated, many with white-collar jobs. Culturally, they pay back their loans."

Numbers seem to support that contention. Virtually all the Korean and Chinese banks operating in Los Angeles have non-performing loan ratios of less than 1.0 percent of total assets.

While the pace of Chinese immigration has slowed somewhat in recent years, and it's emanating less from Taiwan and more from mainland China, thousands of ethnic Chinese still are pouring into the United States each year. Most of them are coming to California and many of those to Los Angeles. According to the California Department of Finance, the state's Asian population was around 3.2 million as of July 1998, the most recent data available, and it is projected to climb above 9 million by 2040. There are an estimated 1.2 million Asians living in Los Angeles County, and if trends continue, that will rise to around 3.5 million.

Chinese make up the third-largest group of immigrants to the state, and the bulk of those are coming directly from Asia. In other words, these banks have an expanding population to draw on, making it likely that they can continue to survive.

Suitors unlikely

Nor is it likely, that a larger, non-ethnic institution will try to snap up any of these banks. Bank of America and Wells Fargo are making some inroads into the Asian community, and both draw praise for advertising in the Chinese-language press. But the likelihood of any major U.S. banking institution acquiring an L.A. Chinese or Korean bank is remote, several industry observers agreed.

"I'm very impressed with BofA and Wells Fargo, and their understanding of the ethnic community," East West's Ng said. "It would be nice for them to have us or Cathay as franchises, but I don't know if they would be able to keep all our commercial banking customers. If they buy one (Chinese bank), half the customers will go to the others."

Such large institutions might do well to remember the case of now-defunct Security Pacific Corp.'s acquisition of American Asian Bank, a San Francisco-based institution controlled out of Hong Kong, for around $21 million in 1988. At the time, Security Pacific was expanding both its Pacific Rim and Chinese community banking efforts, and American Asian, with branches in both San Francisco and Los Angeles, was seen as a good fit. The marriage did' not turn out well.

"It was a failure," Sutro's Chaney said. "Security Pacific tried to assimilate its culture into (American Asian's). Lots of employees and customers left because they liked the feel that American Asian had had (prior to the buyout). The same thing could be said about any such merger these days. You run the risk of losing your core customers. There's such a hard barrier to entry."

The same could be said of the local Korean-American banks, which keep an even lower profile than their Chinese. counterparts. These banks are part of a tightly knit group, many with the same roots.

"These banks are, overall, doing as well as ever," said Steve Didion, who follows Korean banks as an analyst with Hoefer & Arnett inc. "Loan growth is excellent, deposit growth is good, ROE (return on equity) and ROA (return on assets) have improved. From every general standpoint, things are good."

Biggest bank

The biggest of the Korean institutions is Hanmi Financial Corp., parent of Hanmi Bank, with just under $1 billion in assets, followed by Pacific Union Bank, Nara Bank, Wilshire State Bank, California Center Bank and Saehan Bank, which is by far the smallest. Like the Chinese banks, Korean banks' earnings are skyrocketing. For example, Hanmi's net income rose 16 percent in the third quarter ended Sept. 30, to $3.9 million (52 cents per share), up from $3.2 million (43 cents) a year ago. Nara's third-quarter earnings of $2.8 million (56 cents) were almost triple the $1.0 million (21 cents) in the same period a year ago. Others posted similar results.

These banks derive much of their business from their role as providers of loans backed by the U.S. Small Business Administration. Hanmi, Wilshire State and Nara are all among the top 10 SBA lenders in Los Angeles County.

Competition is fierce to lend to the more than 22,000 Korean-owned businesses in the county, and while the number of Korean-owned establishments has soared in recent years, that is unlikely to be sustained. While mainstream U.S. banks are unlikely to acquire Korean banks in L.A., some consolidation among the Korean banks is inevitable, observers said.

"Our president and board members are looking for opportunities to acquire more (Korean-American banks)," said George Chey, a founder and now director of Hanmi Bank. "It's going to happen."