This town may not be big enough for seven Korean-American banks.

Though Los Angeles boasts the largest Korean population in the United States, some wonder whether it can continue to support so many banks that cater to a single ethnic group. The seven are all in the small Koreatown section, and four have their headquarters along a three-block stretch on Wilshire Boulevard.

"This market is very saturated," said Chung Hoon Youk, acting chief executive officer of Hanmi Bank, a $688.2 million-asset institution that controls about 30% of the community's deposits. "Everyone expects some changes."

Bankers are duking it out mainly to make loans to Los Angeles County's 22,500 Korean-owned businesses, most of which are concentrated around Koreatown or the nearby garment district. Such fierce competition, observers say, has compressed loan spreads and has prompted some banks to book riskier loans.

"It's a legitimate ethnic niche, but there is not a need for all of them," said David Harvey, who runs Everest Partners L.P., a Gardnerville, Nev.-based hedge fund that owns stock in two of the banks.

The persistent battle for the same customer niche has led some of the seven to look elsewhere.

In the past two years Nara Bank and Wilshire State Bank have branched into other cities with thriving Korean populations; Wilshire and others are trying to penetrate different ethnic segments.

Nara opened a loan production office in Chicago this month. The $324 million-asset bank -- which has presences in Seattle, New York, and Silicon Valley -- is also finalizing a branch deal in Edgewater, N.J., said president and chief executive officer Benjamin Hong.

Mr. Hong said that "because of its size and capital base," Nara has a better chance of successfully expanding into cities where very few banks concentrate on the Korean community.

One of Mr. Hong's competitors, Saehan Bank, has been pressed to find better loan spreads and is studying Nara's strategy.

Saehan, the youngest and smallest of the city's Korean banks with $115 million of assets, is looking to expand into Oakland and Texas, said president and CEO Joohak Kim.

"Soliciting good customers is very competitive," Mr. Kim said. "We've had to lower interest rates on loans to compete for business."

The ferocious lending environment is forcing Hanmi and Wilshire to pursue other ethnic groups, specifically Hispanics. Hanmi recently hired four Hispanic business development officers, and last week Wilshire, with $237 million of assets, opened a branch in one of the city's Latino neighborhoods, Huntington Park.

The roots of Koreatown's banks can be traced to the 1974 founding of California Korea Bank. It was organized by Seoul-based Korea Exchange Bank, which still owns the $548 million-asset bank.

Won Hoon Chung, California Korea's first CEO, said the bank was a success right away, as many Korean immigrants were uncomfortable doing business with American banks because of cultural and language barriers.

"We broke even in one year," said Mr. Chung, 79, who is known as the "godfather" of Korean-American banking.

Mr. Chung played a vital role in the formation of other banks. He founded and headed Hanmi and Saehan before moving to San Jose last year to serve as chairman of the recently formed Asiana Bank.

Despite the tug-of-war for market share, many of these banks are more profitable than their peers in the United States, according to Federal Deposit Insurance Corp. statistics as of March 31.

Nara, for instance, posted a return on assets of 1.30% and a return on equity of 15.52%, compared with the national averages of 1.26% and 12.99%, respectively, for banks the same size.

Hanmi reported ROA of 1.78% and ROE of 19.51%, compared with its peer averages of 1.28% and 13.71%. Others, such as $302.6 million-asset California Center Bank and Saehan, recorded performance ratios below peer averages.

Sources said they believe that the only way Korean-American banks can expect to grow is through mergers or by opening branches outside California. They also expect there will not be enough good loans to fund without running into credit problems.

"The only answer is consolidation, but it will be difficult," said Robert Gallivan Jr., principal at Bank Compensation Strategies in San Diego.

Bankers would have to clear significant social and financial hurdles to persuade their boards to merge. Insiders and others familiar with the culture say many Korean-American businessmen would be reluctant to give up the honor of sitting on a bank board. Also, board members collect sums ranging from $18,000 to $36,000 a year, sources said.

Still, some bankers appear willing to talk. Brian Cho, senior vice president at Wilshire State, said he has heard the merger chatter, adding that his bank would be "open to the possibility" of merging with a local rival.

One analyst says consolidation is inevitable.

"It's hard for me to believe that this same group will exist two years from now," said Steve Didion, a bank analyst at Hoefer & Arnett in San Francisco, who closely follows the banks. "There will be a shakeout." ?

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