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.
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