Korean-American banks in Southern California are facing a growing crisis as non-performing loans (NPLs) exceed $200 million, signaling a red flag for loan management in the community banking sector.

Key Findings

• Total NPLs for six major Korean-American banks reach $208.31 million in Q2 2023
• Average NPL ratio hits 0.78%, with some banks exceeding the 1% threshold monitored by federal and state financial regulators
• CBB Bank reports the highest NPL ratio at 1.48%, followed by US Metro Bank at 1.22%

Breaking Down the Numbers

According to quarterly Call Reports submitted to the Federal Deposit Insurance Corporation (FDIC), six Korean-American banks headquartered in Southern California—Bank of Hope, Hanmi Bank, PCB Bank, Open Bank, CBB Bank, and US Metro Bank—are experiencing a concerning uptick in troubled assets.

The $208.31 million in non-performing loans is categorized as follows:

1. Non-accrual loans: $152.09 million
2. Loans 30-89 days past due: $55.95 million
3. Loans 90+ days past due: $270,000

Additionally, these banks have written off $5.55 million in loans deemed uncollectible through Q2 2023.

Individual Bank Performance

NPL ratios for each bank:

1. CBB Bank: 1.48%
2. US Metro Bank: 1.22%
3. Open Bank: 0.86%
4. Bank of Hope: 0.84%
5. Hanmi Bank: 0.53%
6. PCB Bank: 0.40%

Bank of Hope and Hanmi Bank, the largest institutions in the group, reported the highest absolute NPL figures at $114.28 million and $33.09 million, respectively.

Factors Contributing to the Rise in NPLs

1. High Interest Rate Environment: The Federal Reserve’s aggressive rate hikes have increased borrowing costs, making it difficult for customers to meet interest payments and loan obligations.
2. Economic Slowdown: The overall economic downturn has put pressure on businesses, particularly in the Korean-American community.
3. Concentration Risk: Korean-American banks primarily serve the Korean business community, with a heavy focus on commercial real estate and construction loans. This concentration amplifies their vulnerability to sector-specific downturns.

Industry Perspective

A Korean-American banking executive, speaking on condition of anonymity, stated, “Large real estate or construction loans can cause NPL ratios to spike dramatically if even a small portion goes bad. While our NPL ratios are still lower than during the financial crisis, we can’t afford to be complacent given the structural risks in Korean-American banks.”

Another industry insider emphasized the importance of conservative asset management, saying, “We’re preparing for various crisis scenarios, including high-value client bankruptcies. Protecting our assets has become more crucial than ever.”

Looking Ahead

The banking community remains cautious about the future. Even if the Federal Reserve begins cutting interest rates as early as September, it could take over a year for borrowers to see significant relief in their loan payments.

As the economic outlook remains uncertain, Korean-American banks will need to exercise extreme vigilance in managing their loan portfolios. The coming months will be critical in determining whether these institutions can navigate the challenges posed by rising NPLs and maintain their vital role in supporting the Korean-American business community.

Korea Times LA