(Adds government comment giving reassurance on debt obligations)
KAMPALA, Oct 8 (Reuters) – Banks in Uganda plan to appeal a court ruling issued on Wednesday that has effectively declared illegal certain syndicated loans – representing at least $1.5 billion worth of debt – an industry body said on Thursday.
The ruling by the Commercial Court was the result of legal action by Ham Enterprises Uganda Ltd, against Diamond Trust Bank (DTBK) in neighbouring Kenya along with its Uganda subsidiary.
“The court said the transactions or the credit facilities that were advanced by DTBK were illegal, null and void and unenforceable because it did not have a licence to conduct financial institutional business in Uganda,” lawyer for Ham Enterprises Matthew Kiwumba told Reuters.
Diamond Trust Bank’s lawyer, Kiryowa Kiwanuka, told Reuters it had filed a notice of appeal against the ruling.
“As a result of the judgement and its implications, the syndicated portfolio currently seated with commercial banks… is now at risk,” Wilbrod Humphrey Owor, executive director of Uganda Bankers Association, an industry body, said in a statement.
At least $1.5 billion in syndicated credit to private sector borrowers could be affected by the ruling, the statement said.
Owor also said in the statement chief executives of all 35 financial institutions in the country resolved to join Diamond Trust Bank and appeal the ruling.
A spokesman for Uganda’s judiciary, Solomon Muyita, declined to provide details of the court ruling. In a statement late on Thursday the finance ministry said it had received inquiries from bilateral and multilateral lenders about the implication of the ruling.
The government, the statement said, will “undertake all its obligations and duties” on already procured and future syndicated loans.
Diamond Trust Bank Kenya and its Uganda subsidiary had put together credit facilities as syndicated loans for Ham Enterprises over several years.Ham and the banks were in dispute over repayments, which resulted in Ham taking legal action against Diamond Trust Bank Kenya, alleging it had illegally advanced the loans because it did not have a Uganda banking licence.Ugandan banks rely on syndicating big credit lines or loans with parent banks in bigger markets to serve major customers like telecoms and manufacturing companies.Local units of major international banks in Uganda include ABSA, Standard Bank and Standard Chartered .