Korean-American Banks Step Outside Core Demographic

Korean-American banks are starting to target customers beyond their core demographic, highlighting the broader importance of expanding reach to boost revenue.

Wilshire Bancorp, Hanmi Financial and BBCN Bancorp have been expanding operations with a goal of serving mainstream clients and other ethnic communities. Such efforts are worth watching because they could provide a blueprint for other niche-focused banks keen on improving the bottom-line in the face of low interest rates and other revenue challenges.

Executives at those Korean-American banks believe that their strategic shift is applicable to other institutions, regardless of whether the historic focus is based on ethnicity, geography or business mix.

"When you're focused on a particular customer sector, whether it's Korean-Americans or a certain town in the Midwest, you are limited in the ways you can grow," said C. G. Kum, Hanmi's president and chief executive. "You need different levers you can pull to grow, whether it is from a customer base or geography standpoint."

Serving Korean-Americans is "an attractive niche from a household wealth and business formation standpoint," said Aaron James Deer, an analyst at Sandler O'Neill, though the overall level of competition "puts some limitation on the rate of growth any one of these banks might be able to achieve organically if they stayed solely focused on that niche."

The market for targeting specific ethnic groups is "fairly mature," added Alexander Cappello, chairman and CEO of Cappello Capital.

As a result, a number of minority owned banks are looking to diversify, a trend that is particularly noticeable among Korean-American institutions.

The $6.9 billion-asset BBCN has been targeting non-Korean business owners in contiguous markets, including Armenians in the Los Angeles fashion district. BBCN also has a large base of commercial relationships with Dominican immigrants, who dominate the supermarket industry around New York City, said Kevin Kim, the Los Angeles company's chairman and CEO.

BBCN is specifically targeting non-Koreans in other areas, including the hospitality industry, supermarkets and other retailers and gas stations.

"BBCN is a relationship-focused bank, and we believe our people are our greatest assets," Kim said. "Our commercial lending teams comprise a strong group of bankers of various ethnic backgrounds and industry knowledge."

Wilshire, also in Los Angeles, already has "a lot of non-Korean customers," but is keen on gradually adding more products and customers, said Alex Ko, the $3.9 billion-asset company's chief financial officer. Wilshire agreed last week to buy Manhattan Bancorp's mortgage lending division, stating in its deal announcement that it should increase "exposure to non-ethnic markets" and generate cross-selling opportunities.

Wilshire also has a warehouse-lending business that serves non-Koreans, Ko said. Mortgages are mostly a "cookie-cutter" product that is very automated, so it doesn't require deep ties to a community to complete, Ko added.

"If we just have business with Korean-Americans, that would be very limited," Ko said. The mortgage deal "is a great opportunity for us to expand our customers beyond just Koreans."

Beyond improving the bottom line, Korean-American banks must be mindful of shifting demographics, industry experts said.

Younger Korean-Americans are becoming increasingly open to banking with more mainstream institutions, industry experts said. At the same time, big banks such as JPMorgan Chase, Bank of America and Wells Fargo are more than willing to target such consumers.

Asian-Americans are "pretty much integrated into U.S. culture and society, so as their communities and clientele change so do these banks," Cappello said. "It is a natural progression. You'll see more and more of these ethnic banks buying things that provide a valuable service or provide growth opportunities beyond just ethnicity."

"All ethnic banks are reaching beyond their historical customer base because of changes in immigration patterns," Kum said. Fewer Koreans are immigrating to the United States, compared to a decade ago, and those that are coming tend to be younger and have professional careers, he added.

Hanmi is "looking down the road to augment its core customer base," including last year's purchase of United Central Bank in Dallas, Kum said. United gave the $4.2 billion-asset company access to other desirable groups, including Chinese- and Vietnamese-Americans. It would have required more time and resources to make the move organically, he said.

Still, banks that serve a specific niche could have trouble tapping into more mainstream customers or other ethnic groups, industry experts said. One issue is the lack of a "built-in brand," said Gary Tenner, an analyst at D.A. Davidson, adding that "other banks may have a better brand to reach a broader customer base."

Wilshire has yet to run into issues with customers pigeonholing them as a niche player, Ko said. It helps that the company was founded more than 30 years ago by Jewish investors, he said.

Hanmi has worked to address any ethnic challenges by making sure its employees are familiar with the language and culture of groups they are trying to attract. Kum has also traveled to Texas to reach out to prospective customers, highlighting the personal service they would get switching to Hanmi. The company is also investing in technology to appeal to younger, second-generation immigrants.

"First and foremost, we are a Korean-American bank," Kum said. "I don't see that changing. But we will be additive to our core client base. Ultimately, as time passes, the distinction of being an ethnic bank will become fuzzier."