Diamond Trust Bank Kenya which was last week faulted by court for conducting illegal operations in Uganda, did not need to be licenced to extend a loan to Ugandan businessman Hamis Kiggundu alias Ham, according to the latest clarification from Bank of Uganda.
BoU Governor Prof. Emmanuel Tumusiime Mutebile stated categorically today that the Central Bank has not regulatory authority over such foreign banks that don’t take deposits from the public in Uganda.
Last week, the High Court’s Commercial Division made a shocking ruling that DTB Kenya (DTBK) acted illegally in lending money to Ham Enterprises owned by businessman Hamis Kiggundu, through Diamond Trust Bank Uganda.
The syndicated loan facility totalled Shs 39.7bn which the businessman acquired to facilitate his businesses and defaulted on payment.
In his ruling, Justice Henry Peter Adonyo stated that DTBK couldn’t lend money to Kiggundu because it had not been licenced to conduct business in Uganda.
The ruling has since sparked a debate on whether or not it outlawed syndicated loaning, and if Ugandans could take loans from foreign banks.
In a move to clear the air, Governor Mutebile revealed that Bank of Uganda does not regulate extension of loans/credit or the financing of commercial transactions that are funded among others by “funds obtained from foreign banks that do not take deposits from the public in Uganda.”
The Governor also clarified that the Central Bank doesn’t regulate loans by funds of Development Institutions, be they multilateral or bilateral, whether such funds are advanced and administered directly by these institutions or through financial institutions in Uganda.
“Foreign banks lending deposits held in jurisdictions other than Uganda are regulated and supervised by their home authorities. It is not mandatory for a foreign bank to establish a representative office in Uganda in order to conduct lending or non-deposit-taking activity,” Mutebile stressed
“Bank of Uganda’s regulatory and supervisory powers only apply to financial institution business conducted by BoU licensed entities in or outside Uganda or activity which should be licensed as such in Uganda. These powers do not extend to activities of foreign banks outside Uganda licensed by foreign regulators.”
The Commercial Court’s ruling has since been temporarily stayed by High Court following a petition by Diamond Trust Bank.
The Principle Judge Justice Flavian Zeija is expended today to hear the main application in which the bank seeks to squash the Commercial Court ruling.