Over the past decade, Koreatown has blossomed with the opening of shops, restaurants, hotels and office buildings.

And in the process, many prominent local Korean-American banks cashed in but, it turns out, likely at a price.

The banks’ portfolios are now loaded with commercial real estate loans at unprecedented levels at a time analysts fear the commercial real estate market is headed for a giant bust.

Several of Koreatown’s largest financial institutions – including Hanmi Financial Corp., the parent of Hanmi Bank, and Wilshire Bancorp Inc., the holding company for Wilshire State Bank – have multibillion-dollar commercial real estate loan volumes that approach or even exceed 70 percent of their total portfolios. That places the institutions among the most heavily exposed banks in the entire country.

Indeed, many Korean-American banks have exposure approaching five times the national average of 15 percent, according to data from the Federal Deposit Insurance Corp.

That puts Korean-American banks, as a group, at potentially greater risk than many others in Los Angeles County if they are hit with a wave of commercial loan defaults.

“Risk grows along with the size of the loan, but it wasn’t easy to predict the real estate market would be in the situation it finds itself at the moment,” said Jeong Ju Lee, senior vice president of marketing at Shinhan Bank America, the U.S. arm of a Korean bank with several L.A. branches.

Much of the trouble stems, ironically, from the growth of Koreatown, the Mid-Wilshire-area community that traces its roots to the 1960s when an influx of Korean immigrants began settling in the area and opening businesses.

The neighborhood suffered a serious setback when the 1992 Los Angeles riots left shattered windows and shuttered storefronts across Koreatown. But while many business owners left, new immigrants poured in, giving the area the highest population of Koreans outside the Korean peninsula roughly 350,000 and making it a target of substantial investment.

“There were quite a number of purchases of shopping malls that had around 10 stores or so,” said Sung Soo Han, executive vice president and chief lending officer of Wilshire Bancorp, which had $1.4 billion in commercial real estate loans about 69 percent of the total portfolio at the end of the first quarter. “There was a lot of interest in retail space since many Koreans have had their own shops.”

Cultural tendencies

Along with the Koreatown economy, the local Korean-American bank scene has flourished in recent years. The number of local institutions has more than doubled to 15, leading some to observe the area might be overbanked, with the competition possibly leading to looser lending practices.

At the same time, there are cultural reasons why Korean banks have gravitated toward real estate loans, according to local bankers.

Koreans tend to regard real estate as a valuable commodity, a mentality brought over by South Koreans who immigrated from a country with 48 million people in a landmass one-quarter of the size of California.

“Koreans have for the longest time thought of real estate as the safest of investments,” said Susanna H. Rivera, senior vice president and chief marketing officer at Nara Bancorp Inc. “If a first-generation Korean-American made money, they typically bought a house and then invested in land or office space.”

Many Korean banks profited from this mentality, but signs of trouble emerged earlier this year when office vacancies along Wilshire Corridor, which includes Koreatown, hit 10 percent in the first quarter, according to Grubb & Ellis Co. That was the first time it was in double digits in years.

The weakening of the commercial market has in part forced several banks to take steps to improve their financial positions.

Center Financial Corp. has been working for the past year to reduce its commercial real estate portfolio by $100 million through the sale of loans. The company said it managed to sell $91 million before the markets froze over.

Hanmi, which in October received an informal order from regulators to raise capital and overhaul its board, announced last week that it will receive as much as $11 million in new capital from Leading Investment & Securities Co., a South Korean brokerage firm, which will boost capital levels in the face of rising losses. There also was speculation the brokerage might acquire Hanmi in partnership with another company.

Still, many of the Koreatown banks said their commercial real estate loans are less risky in part because many are made to small-business owners which tend to hold up more reliably during downturns than loans that rely on tenant leases.

Hanmi, for instance, has more than 60 percent of its commercial real estate loans on owner-occupied properties.

Joseph Gladue, an analyst with B. Riley & Co., said the Korean-American banks are clearly gearing up for potential losses, but he questioned whether the downturn would be as severe as some doomsayers predict.

“Whether it will be as bad as what happened on the residential real estate side,” Gladue said, “is up for debate.”

Staff reporters Richard Clough and Charles Proctor contributed to this article