Unlicensed Foreign Bank Loans Declared Illegal by Ugandan High Court

On 7 October 2020, the High Court of Uganda sitting at Kampala delivered a ruling that has jolted the East African banking industry and the regional loan market. The ruling, delivered by Commercial Division Judge Justice Henry Peter Adonyo, declared credit facilities advanced by a Kenyan bank to two Ugandan borrowers to be illegal and unenforceable because the bank, Diamond Trust Bank (K) Ltd, did not have a licence to conduct “financial institutional business” in Uganda.

The ruling has elicited strong public reactions with some supporting the decision and others vehemently in opposition. However, perhaps the most startling statistic comes from the Uganda Bankers’ Association which has indicated that the syndicated portfolio currently at risk with commercial banks as a result of the ruling is over UGX 5.7 trillion (approx. USD 1.5 billion) of ongoing facilities across various sectors including real estate, road construction, energy and manufacturing.

What is of serious concern is that the decision threatens the recovery of all loans made by a foreign lender into Uganda.

In this alert, we give an overview of the case and discuss the potential impact of the ruling on lending business across East Africa. Click here to read the full article.

 

 


Should you have any questions regarding the information in this legal alert or any other banking, finance or restructuring matters, please do not hesitate to contact Sonal Sejpal or Gloria Matovu Kawooya.

Sonal Sejpal
Partner
ALN Kenya | Anjarwalla & Khannass@africalegalnetwork.com
Gloria Matovu Kawooya
Partner
ALN Uganda | MMAKS Advocateskawooya@ug.africalegalnetwork.com

 


The content of this alert is intended to be of general use only and should not be relied upon without seeking specific legal advice on any matter.

 


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Legal alertUgandaBanking, finance & insolvencyCorporateFinancial Institutions