Standard Chartered, one of the UK's leading banks in the developing world, is proud of its record in Africa. The winner of several awards for best foreign bank south of the Sahara, the bank has a $1m-a-year fund (£550,000) for community projects, taken from an operating profit across the continent of $200m.

But you will search in vain to find a reference on its website to its activities in Angola. Which some see as curious, because Angola is the second-biggest oil producer in Africa, and that means potentially big money for international financiers. Standard Chartered, now chaired by the former BP executive Bryan Sanderson, is a leader in the field.

"We were very excited," John Goodridge, director of the bank's trade finance arm, told a specialist magazine when he landed what it described as "the largest oil-backed transaction in the entire history of the structured-trade-finance [international finance] market."

The deal last year, backed by a consortium of European banks including Barclays and Royal Bank of Scotland, was a loan of $2.35bn to Angola's state oil company, Sonangol. Repayments over five years are guaranteed from future oil production.

For Standard Chartered, as coordinating bank, the deal was a considerable commercial success and the pinnacle of its 16-year relationship with the country.

With its liquid collateral, now being produced at a rate of more than 1m barrels a day, Sonangol had a good reputation for paying its debts. And the bank earned good fees and an interest rate at least 2.5% above the base London bank rate.

For Angola, too, there appeared to be advantages as such a huge loan could never have been raised through the multinational institutions. At a stroke it was able to pay off $750m of debts to one of its largest creditors, its former colonial master, Portugal; and with oil prices rising steeply, Sonangol was confident it could offer prompt repayments.

Yet oil-backed commercial loans like this one go to the heart of concerns about Angola's ability to improve living conditions for its people. Those conditions are reflected in UN estimates that 70% of Angola's 11 million-strong population now live below the poverty line. In the UN's human development index the country comes 166 out of 177. Life expectancy at 36.6 is one of the lowest in the world, and infant mortality, at 191 for every 1,000 life births - is one of the highest. In short, the country desperately needs funds which are well directed.

But commercial loans to Angola coordinated over the years by Standard Chartered and other lenders have been universally criticised by the World Bank, the IMF and leading NGOs, as expensive, lacking in transparency and fuelling a parallel economic system outside the budget which is wide open to corruption.

The Economist Intelligence Unit put it succinctly in its country report for March 2005: "The high cost of such borrowing tends to be outweighed in the government's eyes by the absence of scrutiny, which has allowed the diversion of large financial flows."

In a valedictory interview in March, the British ambassador, John Thompson, called for more transparency from the Angolan government. Criticising the oil-backed loans, he said: "If Angola can negotiate with the IMF and develop a good working relationship, then that should free up concession finance [finance from institutions at favourable rates]. It could also lead to an agreement with the Paris Club [the main group of country lenders] in rescheduling official debt."

A spokesman for the Department for International Development said: "We have concerns about the use of oil-backed loans in Angola. These loans reduce openness in public accounting."

The scale of corruption in Angola has been documented by IMF reports, suppressed by the government, and by research carried out by the NGOs Global Witness and Human Rights Watch.

The IMF found that between 1997 and 2002 some $4.22bn went missing, equivalent to 12% of GDP. The US state department has said that Angola's wealth is "concentrated in the hands of a small elite, who often used government positions for massive personal enrichment".

The scale of that enrichment has been revealed in the country's media which accused 10 of the presidential elite of having wealth of more than $100m each.

The last Global Witness report said: "A major concern exists that Angola's elite will now simply switch from wartime looting of state assets to profiteering from its reconstruction."

Simon Taylor, the Global Witness chairman, said: "There can't be a solution to Angola's problems without financial transparency. By providing these _ loans and refusing to be transparent about them, Standard Chartered is making itself part of the problem."

But the circle of critics is drawn much wider. Multibillion-pound fund managers in the City of London, which monitor their investments for corporate responsibility, have pitched concerns about Standard Chartered helping "the notoriously corrupt Angolan government".

While there is no suggestion of illegality or corruption by Standard Chartered itself, one senior fund manager said: "The problem for the bank is that it can be accused of complicity in corruption."

Says Craig McKenzie, the head of Insight, the ethical watchdog arm of the UK bank HBOS: "There's definitely a reputational risk with these loans."

Karina Latvak of F&C Asset Investment, which has institutional investments of £125bn, notes that last year's loan was "very profitable", but adds: "However, it severely weakens the leverage of the IMF and undermines efforts to reform Angola's economy and make it more attractive to foreign investment in the long run."

A group of six fund managers met Standard Chartered executives in May last year. The bank gave assurances about thorough due diligence and the Angolan government's improving record. But the managers wanted more answers. "The bank declined in a letter to respond to further questions," they reported.

Similarly, Standard Chartered declined to answer detailed questions from the Guardian about the number and size of loans it had been involved in with Angola or to respond to the criticisms of the World Bank and the IMF.

"The facility [the loan] includes specific conditions on the use of proceeds. Along with the other international banks in the group, compliance with international regulations is paramount in the way we structure and conduct our business," the bank said in a statement.

Lack of transparency and rampant corruption are the main reasons why Angola has been unable to win the confidence of the multilateral institutions that could lead to less expensive loans, debt rescheduling and increased credit worthiness.

The core problem, says the latest World Bank report, is the role of Sonangol as a parallel treasury, handling the government's oil-backed loans. The system was put in place largely to raise money for arms during the country's disastrous 27-year civil war.

But since the peace settlement with Unita in 1992, the MPLA government has only slowly begun to open its books. "It's been a tortuous process," said one senior IMF official. Dismantling the parallel system "is likely to face obstruction from powerful vested interests".

The Economist Intelligence Unit said: "Angola and the IMF have played cat and mouse over reform for years, largely because many but not all members of the Angolan leadership are strongly opposed to any deal with the IMF as some reform could disrupt lucrative arrangements that benefit them personally."

The government did take its first tentative step to transparency in 2000 when it hired the international accountancy firm KPMG to examine its oil revenues, although an investigation of honesty and integrity were excluded from the terms of reference. According to parts of the report the government has published, KPMG found a shambles in the accounts of Sonangol and the Bank of Angola with unaccounted-for discrepancies running to hundreds of millions of dollars.

The finance ministry was in no better shape. KPMG concluded that no auditor could say whether the accounts gave a true picture of the company's finances and the central bank did not have a clue about the amount generated by oil production.

In its first corporate responsibility report, posted on the internet, Standard Chartered made its first reference to the controversy although, once again, the name of Angola is missing. The bank told the Guardian its website was being updated.

The corporate responsibility report statement reads in full: "We try to be open about the lending decisions we make. During the year, concern was expressed by a small number of NGOs and Socially Responsible Investment analysts about our role as one of nine lead banks, in a $2.35bn oil-backed financing deal. This issue has been a focus for regular dialogue with SRI analysts and NGOs in 2004. The decision to support this transaction was undertaken after a significant amount of discussion. We accept that there are times when we will face disagreement from other stakeholders. It is difficult to provide full details of the process we undertook before making decisions such as this because of customer confidentiality."

theguardian.com/hearafrica05