Chief Executive Officers (CEOs) of commercial banks in Uganda have been thrown into panic after a Commercial Court judge ruled that syndicated loans are illegal.
For example, a top Bank‘s top leadership has called a crisis meeting this Wednesday evening to discuss the ramifications of the ruling.
Uganda banks’ syndicated loans amount to over Shs 3tn. If written off, the financial sector could collapse, sinking the economy. The Commercial Division Judge, Henry Peter Adonyo on Wednesday ruled that DTB Kenya (DTBK) acted illegally in lending money to Ham Enterprises owned by businessman Hamis Kiggundu.
DTB is battling Kiggundu over Shs 39.7bn which the businessman acquired to facilitate his businesses and defaulted on payment.
Ham had acquired the money in four tranches: $6.2m, $3.2m, $458,604 and Sh2.8b from both DTB Uganda and DTB Kenya between February 2011 and September 2016.
The loans were consolidated later in 2018 and were to run for five years, ending August 23, 2023.
Justice Adonyo ruled that DTB Kenya didn’t have the license from Bank of Uganda as provided for under the Financial Institutions Act 2004.
Kiggundu, through his lawyer, Fred Muwema, argued that DTBK, was carrying out illegal banking business in Uganda by lending money to the first Plaintiff, Ham Enterprises.
Kiggundu further stated that Diamond Trust Bank Uganda was “facilitating and abetting the illegal conduct” of Financial Banking Business in Uganda contrary to the Financial Institutions Act.
Ruling
Justice Adonyo also faulted DTB Kenya for appointing its counterpart in Uganda to collect the loan facility from Ham Enterprises without fulfilling the set legal requirements.The judge described the appointment of agents as “illegal, unethical and breach of trust.”Justice Adonyo further said the “The Act contravened Financial Institutions Regulation number 5 and the first respondent (DTB Uganda) is culpable of breaking the law and is penalized for taking part in an unauthorized transaction.” Panic One of the top Bank‘s management said in a note to its stakeholders that, “The judgement has huge ramifications for the industry, for syndication, for Uganda as investment destination and capital flows.”The note read: “The Executive Directors had called to request us to URGENTLY assist with info before 5pm. Info requested is value of syndicated loan portfolio at risk because of this judgement. This includes intercompany or group, or other independent non-resident syndicate partner funding. It includes both direct loan facilities as well as off balance sheet e. G LC lines, Guarantees etc.”Speaking on condition of anonymity as this […]