Martin Gerwitz has his work cut out for him.

As a Norwest community bank president on the Navajo Nation reservation in northeast Arizona, Mr. Gerwitz operates in an environment that he described as less than "bank friendly."

In fact, many residents were initially hostile to Norwest when in 1993 the company took over two reservation bank branches formerly owned by Citicorp. The Navajo even challenged Norwest's application to buy the branches on Community Reinvestment Act grounds.

Since then, however, Norwest has reversed a trend of unprofitability and even changed some minds among the reservation's 200,000 inhabitants.

The key, Norwest officials said, is allowing local managers a certain amount of discretion on issues such as community relations, marketing, product pricing, and approval of small loans.

In this state, where the cuisine, culture, and heritage are all closely tied to Native Americans, Minneapolis-based Norwest has also recognized that valuing Indian culture is a part of doing business here.

The Navajo Nation, the largest Indian reservation in the United States, covers 26,000 square miles. It is unlike any other area Norwest serves in Arizona, and especially lacks the glamour, palm trees, and wealthy demographics of Phoenix.

Instead, it features unemployment between 35% and 50%, a median family income of $11,835, and a largely uneducated population.

Despite the challenges, Norwest has figured out a way to make the four reservation branches more profitable than the rest of its Arizona banks, on the basis of return on assets.

Fitting into the local culture is an important part of this success, and Norwest tries to be sensitive to the traditions and beliefs of local people, said Jennifer Hatathlie, branch manager of the Window Rock office.

Local medicine men were brought in to bless the buildings when Norwest built its four branches, she noted. Three of the four offices were put up facing the east because the Navajo believe blessings come from that direction.

The bank also hires from the local population. Ms. Hatathlie, a Navajo, is one of the 34 Native American employees of the 37-person operation.

The turnaround has been so significant here that Norwest officials said they may try and replicate it in 20 other Native American communities in Arizona.

But the strategy in the Navajo Nation branches-located in Window Rock, Kayenta, Tuba City, and Chinle-is not entirely unique to the Southwest.

Analysts said Norwest's community banking strategy-which wrings profits even out of very small banks-is used all over the country.

"It's playing the hand that's dealt you," said Ben Crabtree, with Dain Bosworth Inc. in Minneapolis. "They started out with a structure. They bought a lot of small-town banks. They said, 'Do we get rid of these banks or can we make them more profitable?'"

Norwest, which built the new branches on the reservation as a response to a protest by locals, said they would have improved relations with the Navajo anyway.

As well as the cultural issues, there are legal obstacles to serving the Navajo. For instance, mortgage loans are hard to make because the U.S. government is trustee for all Indian land, which makes collateralizing complicated.

Credit standards are another problem. Kelsey A. Begaye, speaker of the Navajo Nation Council, is well respected, well liked, and wields enormous clout. But not long ago, he couldn't get a bank loan.

An enormous man with deep lines baked into his dark face, Mr. Begaye returned to his reservation from the Vietnam War with a drug and alcohol addiction that he didn't kick until the mid-1970s. Even though he now leads the reservation's legislature, it was tough for him to get loans in the past because of his spotty work record and lack of credit. Now Mr. Begaye has a mortgage from Norwest.

The bank's success comes partly from demand and lack of competition. Rival banks claimed opening any more branches on the reservation would be foolhardy. But Norwest is opening a fifth this year.

Pressure from government agencies, including the Office of the Comptroller of the Currency and the U.S. Justice Department, may change the attitude of some competitors, however.

The comptroller's office is expected to release a report soon on how banks serve Indians, and Comptroller Eugene A. Ludwig has told banks that they can no longer ignore the reservations.

There may also be similar warnings from the Justice Department. Three years ago, Blackpipe State Bank in Martin, S.D., agreed to create a $125,000 fund to compensate Native Americans who had been denied loans or who had been charged higher interest rates than white customers.

Other companies, such as Wells Fargo & Co. and Banc One Corp., the biggest bank in Arizona, have tried to serve the reservations. Banc One has a branch in another Indian community in Arizona, while Wells Fargo opened a mini-branch in a Window Rock supermarket. NationsBank Corp. has a small branch outside of Window Rock in Gallup, N.M. Banc One also sends out three "mobile branches," vans that drive through reservations on weekends passing out loan applications.

Norwest competitors are surprised the Minneapolis bank can turn a profit on its Navajo branches. After all, this is an economy where small business often means a resident selling hay out of the back of a pickup truck.

While the younger Navajo may be learning the concepts of money management, many of the elders prefer to barter crafts or livestock.

But Norwest is undeterred. Since it took over, consumer and commercial loan volume on the reservation has more than doubled to $7.3 million and $8.3 million, respectively.

Michael D. Kinnison, president of Norwest's northeast Arizona bank, said the company also credits its profitability to fees paid by customers for check cashing.

And, Norwest officials said they believe they are slowly overcoming the distrust of the reservation's residents. This is no easy feat, given that banking is such a foreign concept to traditional Navajo.

Compounding the difficulties, Citicorp had shut down two of its four branches a few years before Norwest moved in. One was a trailer branch that the Indians joked would someday be hitched to a truck and driven away. Which is eventually what happened.

"The feeling was really bad when the offices were shut down," Ms. Hatathlie said. "People didn't trust the bank after that." When Norwest reopened two of the banks, "people made comments like, 'When are you going to close?' or 'How long are you going to stay?'"

But Norwest spent $4 million to build its four branches, committing more resources to serving the Indian community than any other bank in Arizona, said Albert Hale, president of the Navajo Nation. Other banks have made "short-term commitments," he said. "I see Norwest making a more long- standing or more important commitment."

In addition to the branches, Norwest made a $7.5 million loan for construction of a museum and library, and it agreed to finance the infrastructure for a 300-unit housing development proposed for Window Rock.

Meanwhile, the bank is making strides in other areas, said Ms. Hatathlie. "The market was definitely underserved," she said. But the people here "want to invest. We have people who want to set up trusts," she added.

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