This content is from: Home

Raising Standard

Star CEO Jacko Maree has regilded Standard Bank with help from a booming economy and a fast-growing black middle class. Now he must find growth abroad.

Had Jacko Maree retired four years ago, his high standing in South Africa's financial annals would already have been assured. As the youthful chief executive officer of Standard Bank Group, he saved that venerable institution from a hostile takeover attempt in 1999 and led it back to its accustomed status as the biggest, best-run, most profitable bank in the country. That's when the media and everybody else started calling him by his first name.

Then in 2002, as chairman of the Banking Council, the South African financial industry's main lobbying group, Maree confronted a bigger task than any corporate turnaround. He had to persuade his fellow bankers and investors to devise, within a year, an industrywide charter that would ensure bank ownership stakes, business loans and more access to financial services for the country's overwhelmingly black majority.

"I set about convincing the other banks that it was better to be in control of the process than have legislation forced upon us," recalls Maree in an April interview with Institutional Investor at Standard's glass-tower headquarters in downtown Johannesburg.

He did a pretty good job of negotiating the charter with the guys on the other side of the table as well. "Jacko played the pivotal role," says Sello Moloko, president of the Association for Black Securities and Investment Professionals, or Absip, the main black financial lobby. "The charter would not have happened without him."

The Financial Sector Charter, adopted by the financial community under Maree's leadership in 2003, has infused the issue of race into every aspect of banking, from ATM access in poor townships like Soweto (see box) to the eventual appointment of successors to the current crop of bank executives, including Maree. Fortunately, the pressure to ensure a more equitable distribution of wealth in the postapartheid era comes in the midst of a booming economy. "It has been a golden era for the banks," says Colen Garrow, chief economist at Brait, a leading South African private equity firm. GDP grew by 4.5 percent in 2005, and the consensus prediction among economists is an annual average increase of close to 5 percent over the next three years. The strengthened rand, which has risen by 50 percent against the dollar since 2001, has made imports cheaper and helped keep inflation at an untroubling 3.9 percent last year. Interest rates on a variety of retail loans are the lowest in two decades. All this has given consumers, especially the growing black middle class, enough buying power to send car and house sales to historic levels.

"The emerging black middle class has fueled the growth of the banking industry over the past five years," says Peter Wharton-Hood, head of retail banking at Standard. And no bank has been propelled further.

Now Maree, 51, faces a raft of new challenges, partly of his own making. He must keep Standard's focus on banking without being distracted by the continuous demands of Black Economic Empowerment, as the government's affirmative action policies are known. And he must prove he can lead Standard to growth abroad while defending its domestic franchise against global and South African competitors.

Standard ended 2005 with $127 billion in assets and $1.44 billion in net income -- both records for a South African bank. That was up from assets of $104 billion and net income of $1.28 billion in 2004. With a 26 percent share of overall banking assets, Standard is well ahead of the rest of the Big Four -- FirstRand Bank (17 percent of assets), Nedbank Group (12 percent) and Absa Bank (14 percent), which was acquired last year by Barclays Group, the British bank.

"Standard is our preferred bank in the South African market because it has taken market share from almost all its competitors in virtually every product line over the past two years," says Neville Chester, portfolio manager at Cape Town­based Coronation Fund Managers, which has $800 million in Standard shares among its $14.5 billion in holdings.

Standard led the mortgage market last year with a 26 percent share and grabbed a gawdy 35 percent market share in credit cards. It stayed at the top of key areas of wholesale banking as well, taking a 28 percent share of corporate loans and 33 percent of currency trading. Its nonperforming loan rate was a rock-bottom 0.41 percent. In 2005, Standard was also the most balanced bank in South Africa, with retail accounting for 44 percent of net income, while corporate and investment banking earned 45 percent.

Standard leads the rest of South Africa's banks in market capitalization ($17 billion) and distribution network (746 branches and 3,768 ATMs). According to Interbrand, the global branding consultancy, it has the most valuable marque of any South African enterprise.

Maree and his bank emerged from an otherwise stellar year with a couple of noticeable bruises, however. They had to endure highly publicized complaints from some minority shareholders who thought that Standard was using a separate company to maintain management control over Liberty Group, the fifth-largest insurance firm in the country. Standard has a 30 percent stake in the insurer, which last year reported a net income of $230 million. Maree likens the investment in the separate company, Liberty Holdings, to owning preferred voting stock.

The dissidents failed to force Standard to surrender its stake in the shell company. But Standard and Maree were cast in the role of bullies. "A storm in a teacup," insists Maree. "Our view is that we paid to be the controlling shareholder, and we want to maintain our position."

Harder to dismiss, though, is the criticism by investors and analysts that Maree's sure hand in leading Standard to dominance in South Africa has failed him in the bank's ventures overseas. Since the mid-1990s, Standard has maintained a London-based division, Standard Bank Plc, for its emerging-markets business outside Africa, mostly involving corporate and merchant banking.

Standard Bank Plc has offices in 22 countries, spread across Europe, Asia, Australia and the Americas. Its operations vary widely. In Russia the bank traded more than $6 billion last year in Russian Eurobonds and other debt instruments with local financial partners; it also provided margin financing, options and hedges to Russian financial institutions. This March it joined with Malaysian holding company CIMB Group to launch a $250 million private equity fund investing in infrastructure, energy and natural-resource projects primarily in Malaysia and Indonesia. And as part of its resource banking operations, Standard Bank Plc helped arrange trade financing for exports of Zambian copper, Peruvian silver and Russian oil and steel in 2005.

But these far-flung international operations earned a paltry $71 million last year on $16.5 billion in assets -- down from $93 million on $12.8 billion in assets in 2004. "Up to now the London operations haven't done well, so a lot of people have grown skeptical," says Robert Nagel, a portfolio manager for Cape Town­based African Harvest Fund Managers, which has about $120 million in Standard Bank shares in its $5 billion equity portfolio.

Particularly annoying to investors is the fact that Standard Bank Plc showed only an 8.2 percent return on equity last year -- compared with the bank's remarkable 33.6 percent ROE for its domestic operations. "Considering the sort of year emerging markets had in 2005, Standard had an extremely disappointing performance in its international business," says Michael Gresty, a banking analyst at Deutsche Securities in Johannesburg.

Maree says he's determined to turn around his bank's international performance and hopes to double Standard's business outside South Africa over the next five years. But for now he readily agrees with the potshots at overseas results: "The criticism is absolutely valid."

FOR MAREE SUCH CANDOR IS innate. Tall and blond, with small eyes dwarfed by oversize spectacles, he is courtly, somber and uncomfortable with the media hype that has elevated him to quasi-rock-star status. He grew up in an affluent household in the lily-white Johannesburg suburbs, admittedly indifferent to the injustices of apartheid. "Like so many young white South Africans, I simply went about getting an education without being politically attuned," he says.

Maree hopscotched between Afrikaans and English schools that were meant to expose him equally to the two dominant white cultures. After completing Dutch-dialect elementary school, he boarded at St. Andrew's College, an Anglophile bastion in the province of Eastern Cape, where he starred at rugby and cricket. Then it was back to the Afrikaner environment of Stellenbosch University, east of Cape Town amid the vineyards and crenelated mountains, where Dutch colonial architecture and reactionary Afrikaans attitudes still survive. Maree finished his schooling at Oxford University and returned to South Africa in 1980 as a merchant banking executive at Standard, where he rose steadily over the next 15 years to become deputy CEO.

His father, John Maree, capped a long, successful business career with the chairmanship of Nedcor (as Nedbank was called before May 2005), one of the Big Four banks, where he formed a dynamic duo with the chief executive officer, Richard Laubscher, a financial industry luminary. But in 1999, two years after John Maree retired, Laubscher and Nedcor launched a hostile bid for the much larger Standard Bank, where Jacko had just been tapped to become CEO. Both the older Maree and his son were stunned. Jacko recalls, "It was a cheeky bid, quite frankly -- a case of a smaller bank wanting to take over a supposedly sleeping giant."

Founded in 1862 and grown rich during the early South African gold and diamond mining boom, Standard was part of the U.K.'s Standard Chartered Bank until 1987, when anti-apartheid protests in Britain induced the parent bank to divest its South African holdings. Standard thrived as an independent bank even during the years of the global economic embargo against South Africa. Its shareholders got used to annual returns of 20 percent or more.

But in 1998­'99, Standard, which was heavily involved in emerging-markets businesses, especially complex trade finance deals, got walloped by the collapse of the ruble in Russia, which came on top of the Asian financial crisis of 1997. Annual earnings growth dropped to 8 percent, and Standard's shares swooned. Nedcor's bid might have been cheeky, but analysts deemed Standard the South African bank most vulnerable to acquisition. "It was an all-out fight, and it went on for nine months," says Maree.

He gained time against Laubscher and Nedcor by challenging the legalities of their bid in court. Meanwhile, he appealed to shareholders, using sentimental arguments about Standard's august past as well as the promise of a new commitment to slash expenses and return the bank to double-digit earnings growth within two years. "We also convinced investors that it wasn't clever business strategy to create a merged bank that would have nearly 50 percent of the market and become the target of every consumer activist," says Maree. The argument appealed to the government, which blocked the Nedcor bid in 2000. (Nedcor's financial results subsequently declined, and Laubscher resigned in September 2003, after his bank issued a profit warning.)

Maree kept his promises about ruthless cost-cutting. He estimates that 75 percent of the top 300 managers he inherited in 1999 are no longer with the bank. "We brought in a lot of young people and gave them responsibilities at a very early age," he says. He cites two in particular: Wharton-Hood, now 40, a white accountant who was put in charge of retail banking; and Sim Tshabalala, 38, a Zulu lawyer who is Wharton-Hood's deputy and heads African banking operations outside South Africa. Both men are widely mentioned inside and outside the bank as likely candidates to succeed Maree.

Maree insists there was no change in the bank's basic strategy after he took over -- just a continuation of previous policies emphasizing retail banking, but carried out more forcefully by the new managers he installed. A year after the crisis of 1998­'99, Standard was back to double-digit earnings growth. "The economy and banking environment were improving tremendously," Maree says. "We were fixing a bank under pretty benign conditions."

If Maree is diplomatic about the management that preceded his, Wharton-Hood sounds brashly unforgiving. "What was wrong with the bank in 1999?" asks the retail chief, in a mocking tone. "Nothing -- apart from the fact that we didn't have the right staff or the right products or the right services or the support of our customers."

Wharton-Hood arrived in 2000 with a strong background in fashion retail -- both sales and finance -- at Edgars Consolidated Stores, a South African department store chain. "The lesson I learned from fashion retail was that you fight for market share on service instead of on price," he says. He claims to have quantified service performance at Edgars by measuring merchandise sales by department, by salesperson and by day. "We did exactly the same thing at the retail bank, measuring employees by how many accounts they opened, by product and customer grouping and by day," he says. "In 2000 we were rated worst in service among the big banks, and four years later we got the top ranking."

But by then, service and profits weren't the only ways to measure a bank's performance. Progress on the racial front had moved center stage. Apartheid ended in 1994 when the country's 12 percent white minority ceded power to President Nelson Mandela in free elections. But it was under his handpicked successor, Thabo Mbeki, who was elected president in 1999 and reelected in 2004, that Black Economic Empowerment gained prominence. The 78 percent black majority -- as well as the 10 percent so-called Indian and Colored minorities -- were clamoring for shares, jobs, promotions and higher incomes in all enterprises.

A watershed in the BEE program came in 2002, when controversy engulfed the powerful mining industry. White mine executives and Mbeki government officials were at loggerheads over how best to give blacks ownership stakes and promote them into management. An internal government paper leaked to the media called for 30 percent black ownership of existing mines and 50 percent black stakes in all new mines within a decade. The reaction was a 15 percent plunge in mining shares over two days on the JSE Securities Exchange, the Johannesburg stock market. Eventually, government ministers and industry executives negotiated a more moderate charter calling for 15 percent black ownership of mines by 2010 and 25 percent by 2015.

But the controversy galvanized South African banks. White senior executives and black empowerment advocates alike were determined to avoid a similar storm in forging a Financial Sector Charter the following year. They even got government officials to agree not to become directly involved in the negotiations but to sit through the process as observers. "It was necessary to ensure that no systemic risk was introduced into the banking system," says Absip's Moloko, a chief negotiator for black financial industry executives.

With Maree chairing the talks, the banks came up with a more flexible charter than the mining industry. The accord turned over 10 percent of every major bank's shares to blacks in 2004. By a decade later an additional 15 percent of a bank's shares are to be indirectly owned by blacks through pension funds. Or, instead of ceding additional indirect ownership by 2014, a bank could help meet its BEE obligations by more aggressive recruitment and promotion of black employees, financing of black businesses and extension of loans and other services to poor blacks.

The charter was so moderate that it scared nobody. "It neither endangered the financial system nor endorsed policies that would force banks to lend uneconomically," says Alise Ross, a London-based credit analyst who covers South African banking for Standard & Poor's.

At Standard Bank the 10 percent stake was sold in July 2004 to a consortium of black investors (who received 4 percent); the bank's black employees, led by 2,500 black managers (a further 4 percent); and community agencies and small-business groups (the remaining 2 percent). Standard's white shareholders agreed to sell the 10 percent stake at a 4.71 percent discount to the stock price on July 9, 2004, the day the accord was signed. Blacks bought their shares with loans of up to 20 years from Standard -- and agreed to make repayments from their future stock dividends.

The commitment to BEE goals at Standard has gone beyond distributing shares. Although most other banks have moved their headquarters to Sandton, an affluent northern Johannesburg neighborhood, Standard has stayed in the older, crime-ridden downtown as an act of faith in the eventual revival of the area. Inside the building, in almost every office or work space, a white manager seems to have a younger black deputy, apparently being groomed for promotion. Competition to recruit and keep black managers is fierce in the banking industry. "Besides having to cope with the existing skills deficit in the country, we lose an inordinately high number of black managers because every bank is trying to meet employment targets," says Tshabalala, the deputy head of retail banking.

The passage of the Financial Sector Charter hasn't meant an end to black empowerment demands. "Obviously, more can be done, but it is a step in the right direction," says Moloko, whose black lobby group is pressing for an eventual 25 percent direct black ownership of banks, among other goals. At Standard the charter obligations have required a continuous preoccupation with BEE goals. "There is a massive focus on the issue," says Maree, who chairs a monthly meeting to review BEE issues at Standard. "We have redirected a lot of resources and clever people into complex areas that were neglected in the past."

One of those areas is lending to small and medium-size enterprises that are at least partially owned by nonwhites. In South Africa, as in most countries, SMEs are the biggest creators of new wealth and jobs. It has been a hugely profitable market for Standard over the past five years, according to Melt van der Spuy, the bank's head of small-business lending. Net interest margins tripled over the past year, to almost 2 percent, in the fastest-growing segment -- enterprises with annual revenues of $500,000 to $1.25 million. Asked if he can offer the same interest rates to new black owners as to established white businesses, van der Spuy replies, "That's a question that gives me sleepless nights because the answer is: No, I can't, but I still have to make it work somehow."

To do so, van der Spuy tries to mitigate risk by having Standard finance black empowerment deals that create minority stakes for nonwhites in existing small and medium-size businesses, while enabling the original white owners to retain management and majority control. "We feel comfortable about making those deals happen, because they tend to work and we don't have to charge a risk premium," he says. "The challenge comes when the original owners sell out completely or if it's a black start-up." In those cases, the bank tries to reduce risk by enlisting a government agency as guarantor.

The financing of such deals has become a major source of South African banking fees. "BEE has been the biggest driver behind mergers and acquisitions," says Colin Reddy, a director at the BusinessMap Foundation, a Johannesburg think tank. According to BusinessMap, about $9.3 billion in BEE loans were made to help companies sell stakes to nonwhites in 2004, the most recent year for which overall figures are available. That's up from only $750 million in 2000. At the end of 2005, Standard had approximately $1.73 billion in BEE-related loans on its balance sheet. Over the past two years, the bank collected an undisclosed amount of fees as an adviser on BEE deals worth about $6 billion.

But the most profitable operation at Standard is retail banking -- with net earnings of $634 million last year -- and race is undeniably an underlying element in that income. Between 2000 and 2005, housing starts more than tripled and car sales doubled. A prime factor in these increases is the black middle class. Standard Bank categorizes this group as comprising households with annual incomes between $5,000 and $24,000. By this definition, black middle-class households rose from 3.8 million in 2000 to 5.7 million last year.

"What we are seeing is a structural adjustment in the economy that is similar to what happened in the U.S. and Europe after World War II," says Tshabalala, the bank's cheerleader on profit growth. "There is a tremendous tailwind in retail banking, and it's not weakening."

The problem is that the tailwind isn't yet propelling enough blacks out of dire poverty. According to Johannesburg's Institute of Race Relations, the number of South Africans living on less than a dollar a day has doubled over the past decade, to 4.3 million out of a total population of 45 million. Unemployment stands at 27 percent. Almost half the population lacks a bank account.

This means that South Africa's 80 percent loan-to-GDP ratio -- impressive by comparison with other emerging markets, such as Poland (44 percent) and Brazil (25 percent) -- is racially skewed. "You can view the South African financial system as one that predominantly catered until now to the highly banked white population," says S&P analyst Ross. That's why S&P gives only a BBB credit rating to Standard Bank, despite its glowing financial statistics.

The huge income disparity linked to race is also a big reason why South African banks -- even Standard -- continue to have low price-to-book-value ratios compared with banks in Central and Eastern Europe or even Latin America. When Barclays paid $5.4 billion, or 2.3 times book value, last year for 56 percent of $65 billion-in-assets Absa, it was widely hailed as the largest foreign investment in South Africa's history and a vote of confidence in the country's postapartheid course. But the investment was a bargain by comparison with the $4.5 billion -- or 5.8 time book value -- that Austria's Erste Bank paid in December for 62 percent of Romania's leading bank, Banca Comerciala Romana, which had only $9.3 billion in assets.

Standard's senior managers tend to blame the relatively low valuation of South African banks on risk perceptions dating back to the apartheid era. "For foreign investors there is always an overhang in a place like South Africa," says Ben Kruger, Standard's head of corporate and investment banking.

Kruger, 46, who has spent his entire career at Standard, is in the spotlight as the bank seeks new directions to grow. Over the next three years, the government will spend $55 billion on infrastructure projects linked to the 2010 World Cup soccer championship, which will be held in South Africa. With companies contracted to build roads, bridges, airports, stadiums and hotels, Standard and other banks are expecting strong profits from corporate loans and investment banking fees.

But Kruger will have a tougher time wringing profits from his other major area of responsibility -- London-based international operations, which accounted for only $71 million in net income in 2005, or 5.2 percent of Standard's total earnings. The bank began those operations in the mid-1990s, focusing largely on syndicated loans, resource banking and trade finance in emerging markets. Back then, there were fewer competitors, yields were high, and the business was fairly uncomplicated. "Now there are lots of players, and we weren't agile enough to adapt," says Kruger.

Investors, who are delighted with the bank's domestic results, have showered Standard with all sorts of advice on how best to handle its business abroad. They have little to complain about as regards the bank's 27.4 percent ROE on its business last year in the rest of Africa, where it has offices in 16 countries and $5 billion in assets. But the region's $126 million in net income was only 8.75 percent of Standard's total 2005 earnings. "The problem is, the combined GDP of the rest of Africa -- even including Nigeria -- is considerably smaller than South Africa's," says Deutsche Securities analyst Gresty.

Foreign investors, who hold 21 percent of the bank's shares, tend to be even more skeptical of Standard's ability to earn substantial income outside the African continent. "We feel cautious about their operations in places like Brazil and Russia," says Andrew Elder, a fund manager at London-based Genesis Investment Management, whose more than $17 billion in assets include about $500 million in Standard shares. "We are taking longer to understand the potential synergies or benefits that those businesses could bring, but we're hopeful that management changes can improve these operations."

Domestic institutional investors, who hold the bulk of Standard's shares, continue to support the efforts to diversify abroad. But they complain about a lack of focus. "We would like to see Standard focus more on building relationships with particular clients in emerging markets rather than just selling financial products to everybody," says Kokkie Kooyman, a Cape Town­based fund manager for Sanlam Investment Management, whose $55 billion portfolio includes $1.1 billion in Standard stock. "For example, they could get to know a client well enough to finance more than just its oil deals."

Standard is already moving in that direction. Instead of sending visiting officers from the London headquarters every few weeks to Hong Kong or Istanbul or São Paulo, the bank plans to beef up its staff in regional offices, a costly proposition. "We will go for a stronger on-the-ground presence aimed at getting a lot closer to our clients," promises Kruger. "We will do this especially in Asia."

Maree concedes that the returns from international operations have been "stark" compared with those from South Africa. But he insists that Standard can't withdraw to its domestic stronghold. "We are already a big player in a smallish home market that is bound to get more competitive," he says. In the seven years he has been at the helm, Standard has increased its share of the country's total banking assets from 17 percent to its current 26 percent. Those market gains came mainly at the expense of Nedcor and Absa. But Nedcor appears to be in the midst of a turnaround. And Absa, now under Barclays ownership, is bound to be a stronger player domestically and in the rest of Africa, where the British parent is well established. "Barclays is a formidable competitor," says Maree.

To increase Standard's footprint abroad, Maree has announced plans to spend $1 billion over the next three years on five foreign acquisitions. The most important thus far involve two deals in Argentina for undisclosed prices. Standard is in the process of acquiring ING's Argentinean operation, subject to South African and Argentinean regulatory approval. Separately, Standard is joining with two Argentinean families, the Wertheins and Sieleckis, in the purchase of the BankBoston Argentina assets held by Bank of America. That deal -- with Standard taking 70 percent, the Wertheins 20 percent and the Sieleckis 10 percent -- is subject to negotiations over how much of the debt obligations the Standard-led consortium is willing to assume. But if both Argentinean deals go through, they would create the core of a full-scale universal bank in that country for Standard. "It's the first time we have been involved in such a strategy outside South Africa," says Kruger.

Maree acknowledges grumbling by some foreign fund managers that they bought Standard shares to invest in South Africa, not Argentina -- a country with a roller-coaster reputation that is still recovering from its financial meltdown in 2001. "But we aren't put off by challenging economies," he says. "We have been happy to operate in places like the Congo and Nigeria, and we established ourselves in Russia and Brazil when everybody else was heading for the hills."

Maree would like to double Standard's business in Africa and emerging markets elsewhere over the next five years and raise their contribution to 25 percent of the bank's total income. "But that won't be possible if South Africa continues to grow at the pace it has for the past five years," he says. "An enormous number of black people are entering the economy -- people who didn't own homes or cars. And it looks like it can continue."

That doesn't sound like a CEO who is willing to concede any of his bank's hard-won domestic market share to rivals. Nor does Maree seem persuaded that anywhere else will be more profitable for Standard than its own turf.

Bank-in-the-box: Reaching out to the poorest

Soweto is the vast Johannesburg township that a million mostly impoverished blacks call home. It poses the ultimate test of the ability of South Africa's financial system to reach out to the near-majority of citizens who have never used banking services. "Reaching out" literally describes the way Jane Mashiane, a Standard Bank Group manager in Soweto, recruits many customers. "As soon as I hear about a nearby construction site, I go out there and meet with the contractors to convince them to use our bank for payroll services," she explains. Mashiane will even arrange to send taxis to transport the workers to her premises on paydays.

Mashiane runs a Standard outlet next to a dusty open-air market lined with fruit stalls and caged chickens in the southern limits of Soweto, 20 miles southwest of downtown Johannesburg. The outlet -- one of a dozen in the townships around Johannesburg -- doesn't qualify as a full-fledged bank branch. Called a "bank-in-the-box," it is a spare, prefabricated metal square painted blue, with a single ATM near its entrance. Inside are desks for the three employees, who neither handle nor keep cash on the premises.

"Security is a big issue," says Logan Naidoo, Standard branch operations manager for Gauteng, the province that includes Johannesburg and Soweto. The bank-in-the-box doesn't generate enough business to merit armed guards and bulletproof teller windows. Criminals regularly jam the outside ATM with paper or other debris in an effort to lure customers to an isolated cash machine a few blocks away, where they can be more easily robbed.

When Mashiane isn't chasing after construction workers, she spends most of her time explaining the use of ATMs to customers who can neither read instructions nor decipher numbers. It's worth the effort. ATMs are the entry point to the financial system for those without bank accounts. To use the machines, they must first obtain a savings account and a debit card. "Then we can offer them other services, such as credit cards, checking accounts and loans," says Mashiane.

Ephraim Nkabinge, a 60-year-old taxi owner, is one of those customers trying to climb up the ladder of financial services. He is already using the ATM at the bank-in-the-box to deposit his savings and make withdrawals, and he will soon receive a credit card. He has applied for a loan to purchase another taxi, but it hasn't yet been approved. "If you keep stalling, I'm moving my money to another bank," he warns Mashiane.

In time a bank-in-the-box gets upgraded to a full-service branch. This has happened in several of the more thriving Soweto neighborhoods where decrepit shanties have been replaced by rows of tile-roofed bungalows, and dusty alleys have given way to paved streets and pocket parks. At the Protea Gardens shopping center, near the northern entrance of Soweto, the Standard Bank branch is at the end of a broad corridor flanked by consumer electronics stores and a real estate office. It resembles a point-of-sales operation. Clients who have just signed up for cell phones, television sets or even small houses in the nearby retail outlets, stream into the Standard branch for financing to cover their purchases.

"Consumer loans are very popular," says Glennis Tommy, the branch manager, whose 30-member staff of mostly women handles more than 6,000 accounts. Interest rates, she says, typically run from 13.5 percent to 17.5 percent annually, requiring monthly payments that can stretch for up to four years.

Many borrowers qualify under a program called Mzansi. Introduced three years ago as part of the Financial Sector Charter aimed at reaching the government's Black Economic Empowerment goals, Mzansi is supposed to reduce the costs of banking transactions for low-income people. Standard Bank has about 340,000 Mzansi clients, or a 15 percent market share. "But we are taking losses on Mzansi, because interest rates are higher than for usual deposit accounts and fees are cheaper," says Sim Tshabalala, deputy head of retail banking at Standard.

The losses Standard and its peers have absorbed elicit little sympathy from most South Africans, however. According to "Competition in Banking," a report published last year by the South African Reserve Bank, local institutions charge more and higher fees for retail transactions than do banks in most countries. -- J.K.