The lingering economic turmoil in South Korea is roiling Pacific Century Financial Corp.'s loan portfolio.
At issue is about $34 million of loans to a group of related South Korean companies.
The worries cropped up when the $14.5 billion-asset Honolulu-based parent of Bank of Hawaii realized that the borrowers were not retooling their capital structure as fast as other South Korean firms and banks, said Karl K.Y. Pan, executive vice president and head of the banking company's Asian operations.
"We got the notion that problems with this credit would be occurring because this group of borrowers was a little less speedy than others in undergoing the restructuring needed as a result of the Asia crisis," Mr. Pan said in an interview this week.
Mr. Pan declined to identify the borrowers.
But some observers speculate that the problem is with Daewoo Group, a South Korean conglomerate that is in discussions with creditors over more than $70 billion of debt.
The potential problem was first disclosed in a quarterly Securities and Exchange Commission document the banking company filed last month.
If the loans were taken off accrual status, Pacific's nonperforming assets would jump 22%, based on statistics from the SEC filing.
"This is certainly a material potential problem and will be something to watch," said Joseph K. Morford, an analyst with Dain Rauscher Wessels in San Francisco.
Though acknowledging that $34 million "is a good chunk of change for a bank like us," Mr. Pan said it is far too early to predict the fate of the loans.
"We've got a lot of discussions going on with these companies, so things are very fluid," Mr. Pan said.
"In the late morning it's going in one direction, then in the early afternoon it's going in the other direction."
Hawaiian banks, after struggling through nine years of sluggishness in the island economy, are generally posting incremental improvements in asset quality.
However, Pacific Century, unlike its $16.7 billion-asset hometown rival BancWest Corp., has a substantial proportion of its assets invested in Asia and the Pacific Rim.
Other U.S. banks have faced trouble from South Korea. However, most of those with South Korean credits ran into problems back in late 1997 and early 1998, when the onslaught of the Asian financial crisis forced them to restructure the loans.