Tussle heats up as Uganda lenders appeal loan ruling

By John Otini
Friday, October 16th, 2020
Personal loan. Photo/Courtesy
In summary
    • Ugandan banks have traditionally relied on syndicating big credit lines with parent banks in bigger markets to serve major corporate customers and the ruling, which has been appealed, put the fate of such loans in doubt.
    • According to court documents, Kiggundu provided security/mortgage comprised in Plot No.923, Block 9 located at Makerere Hill Road to support the credit facilities he had got from DTB but the businessman says when he carried out an audit and reconciliation of the loan accounts, he found out that the DTB had taken $23 million from his account.
    • DTB bank says the businessman issued notices to it purporting to terminate their bank-customer relationships, setting up a protracted legal battle that could have far-reaching impact in the banking sector.

Banking sector lobby group in Uganda has asked the East African Court of Justice to quash a ruling against Diamond Trust Bank Kenya in which the bank is accused of stealing Sh2.5 billion ($23million) from its client.

The lenders under their umbrella, Money Lenders Union Ltd together with their Secretary General Male Mabirizi filed their case before the Kampala Sub-registry of the East African Court of Justice, describing the ruling as reckless.

Businessman Hamis Kiggundu sued Diamond Trust Bank Uganda and DTB Kenya for allegedly removing over $23 million illegally from his business accounts over the course of a decade.

The High Court in a ruling ordered Diamond Trust Bank (DTB) Uganda and Kenya to pay the money it had illegally debited from Ham Enterprises accounts and legal fees and damages they caused to the Enterprise.

“I do order for the recovery by the applicants from respondents USh34 billion and $23 million big monies that were unlawfully taken by them from applicants loan accounts,” Justice Henry Adonyo ruled.

The judge also ruled that DTB did not have a licence to operate in Uganda too, but the Central Bank of Uganda in defence of DTB said the bank did not need a licence to run a correspondent office and that the loan was given from Kenya.

Uganda’s central bank said foreign-based commercial banks do not need its approval to lend funds originating abroad.

“Foreign banks lending deposits held in jurisdictions other than Uganda are regulated and supervised by their home authorities,” it said in a statement.

“It is not mandatory for a foreign bank to establish a representative office in Uganda in order to conduct lending.”

Though the Bank of Uganda’s position does not override the court’s ruling, it boosts chances of a successful appeal by Diamond Trust Bank.

In March, Kiggundu and his two companies — Ham Enterprises Ltd and Kiggs International (U) Ltd — dragged DTB-Uganda and DTB-Kenya to the Commercial Court accusing them of fraudulently siphoning the funds from his accounts without his consent.

Syndicated loans

The ruling rattled the regional banking sector throwing the syndicated loans market into a spin but players saw respite in the Central Bank of Uganda’s assurance that it will ensure justice is served.

Kiggundu contends that between February 2011 and August 2018, he sought and was offered loans by the banks for construction of commercial properties.

He said when he carried out an audit and reconciliation of the loan accounts, he found that the banks had purportedly over-deducted $2,346,670 from his account.

Kiggundu also claimed that DTB Uganda does not have a licence to operate in Uganda and has since sued the Central Bank of Uganda for allowing it to conduct business in the country.

However, DTB argues that the facility agreements entered into between the parties are legally binding and enforceable under the law and that the deductions and charges made against the plaintiff’s accounts were in accordance with the credit facilities issued to them.

“The respondents denied all the claims of the applicants and in rebuttal tendered in an affidavit by Stephen Kodumbe, the Head of Legal, Head Debt Recovery and Company Secretary of the 2nd Respondent Company,” court documents read. 

DTB in an affidavit however said the loan was applied for and approved in Kenya and that the Ugandan unit was only being used as a collection centre.