Ugandan Central Bank Absolves Itself of Blame in DTB Loans Case
Bank of Uganda said foreign banks lending to local companies do not fall under its jurisdiction.
(Bloomberg) -- Bank of Uganda said foreign banks lending to local companies do not fall under its jurisdiction, exonerating itself from blame after a high court ruled that a loan arranged by a Kenyan bank was illegal.
The court ruled earlier this month that a loan by Diamond Trust Bank Kenya Ltd. to Kampala-based companies using its Ugandan subsidiary as the agent was unlawful. The ruling prompted the Uganda Bankers’ Association to warn of defaults on as much as $1.5 billion worth of syndicated loans in the country.
“Bank of Uganda does not regulate extension of loans/credit or the financing of commercial transactions that are funded using funds obtained from foreign banks that do not take deposits from the public in Uganda,” Governor Emmanuel Tumusiime-Mutebile said in an emailed statement.
Foreign lenders are not obliged to establish representative offices in Uganda in order to conduct lending or non-deposit-taking activity, he said. Local agents of foreign banks, such as Diamond Trust Bank Uganda Ltd., are therefore not overseen by the central bank, according to the statement.
“Bank of Uganda has clarified the law, it doesn’t regulate agents,” Fred Muhumuza, an economist, said by phone.
Last week’s ruling ordered DTB and its subsidiary to repay $32 million it debited from the accounts of Ham Enterprises Ltd. and Kiggs International Ltd., which are owned by local businessman Hamis Kiggundu. DTB is appealing the judgment, according to its lawyer.
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