Uganda to lenders: Ham-DTB ruling is no reason to worry for syndicated loan repayment

The Ugandan government, through its Finance Ministry, has allayed fears among financial institutions the country borrows from after the High Court ruling that declared syndicated loans unlawful.

On October 07, Justice Henry Peter Adonyo of the Commercial Division of the High Court in Kampala, ruled that Diamond Trust Bank (DTB) Kenya illegally extended loans to Kiggundu, popularly known as Ham, of Ham Enterprises.

Justice Adonyo ruled that there was no evidence that banking sector regulator Bank of Uganda (BoU) had licensed DTB Kenya to offer financial services in Uganda.

“The act of DTB-Kenya in conducting financial business is licensed in Kenya and it therefore illegally offered the facilities in Uganda,” the judge announced.

“The act contravenes regulation number five [of Financial Institutions Act, 2004) and therefore DTB Uganda is penalized for taking part in illegal business.”

But DTB has appealed the ruling.

The financial institution has also been joined by other commercial banks under the Uganda Bankers Association (UBA).

COMMERCIAL BANKS WORRIED

UBA noted that the syndicated portfolio stands at Shs5.7tn, equivalent to $1.53bn.

These are loans spread across various sectors including real estate, road construction, hydro-electric power, oil and gas and manufacturing.

Consequently, most banks have halted the extension of syndicated loans to clients following the landmark ruling.

“The figures exclude syndicated lending to Government of Uganda who is the largest beneficiary of syndicated lending for various development programmes in the country,” the bankers said in a statement issued on October 08.

They added that “the wide sweeping nature and sheer weight of shockwaves the judgement has sent to our international partner agencies and lenders and the implications for the country as an investment destination” would encourage “other borrowers with foul intention” to “anchor their default on this judgement that declared syndication illegal.”

GOVERNMENT REASSURES LENDERS

In a statement issued by Dr Damulira Sengonzi on behalf of secretary to the treasury and finance ministry permanent secretary Keith Muhakanizi government expressed its “commitment to pay its public debt obligations.”

“The Government of Uganda has received concerns from different development partners and financing institutions regarding its position on syndicated financing arrangements and public debt obligations (external and domestic),” wrote Dr Sengonzi.

“In this regard, the Government of Uganda wishes to reiterate its commitment made to all its financing partners in respect to all procured and future syndicated loans and assure them that it will undertake all its obligations and duties under the different frameworks in line with Article 160 (1) of the Constitution of the Republic of Uganda and Section 38 of the Public Finance Management Act (2015).”