The Bank of Uganda (BoU) finally broke silence on the monumental court battle between the businessman Hamis Kiggundu and Diamond Trust Bank (DTB), following the ruling Wednesday that DTB’s subsidiary in Kenya had illegally lent money to Kiggundu’s businesses since it doesn’t have a license to conduct business in Uganda.
In January 2020, Ham Enterprises dragged Diamond Trust Bank Uganda and Kenya to Court for allegedly fraudulently debiting over Shs120bn from their Shillings and Dollar accounts over a period of about 10 years.
The Bank, having failed to refund the reported unlawfully debited monies from the company’s accounts, Ham Enterprises instituted legal action against the Bank for recovery of the same.
DTB responded by demanding Shs39bn and asking Court to impose regulation 13 of the Mortgage Act which requires that anyone challenging a bank must pay 30% of the disputed amount.
This was however ruled out of the case by the court and Ham Enterprises petitioned the constitutional court challenging its constitutionality.
Now, on Wednesday Judge Henry Peter Adonyo ordered Diamond Trust Bank to pay Ham Enterprises Ltd the Shs120bn.
The judge also ordered the bank to pay the company owned by businessman Hamis Kiggundu 8% interest rate (Shs9.6bn) as a penalty for illegalities carried out on Ham Enterprises Accounts, return all titles previously secured by the bank and release all the personal guarantees.
The deal DTB closed with Ham is called a syndicated loan, where a group of lenders referred to as a syndicate work together to provide funds for a single borrower.
In this case, DTB Uganda got some of the money it lent to Ham from its sister company in Kenya.
By ruling in favor of Ham, the Uganda Bankers Association noted that it would harm the banking industry and economy as a whole since most banks in Uganda have been using this style of lending to lend money to the Ugandan government. The government is said to be the largest beneficiary of this kind of arrangement, UBA says.
“As a result of the judgment and its implications, the syndication portfolio currently seated with commercial banks that is now at risk is over Shs5.7 trillion ($1.53bn) of running facilities across various sectors including real estate, road construction, energy covering hydroelectric power, oil & gas and manufacturing among others,” UBA Chairman Mathias Katamba and UBA Executive Director Wilbrod Humphreys Owor wrote in an Oct. 8 statement.
“The above figure does not include pipeline transactions that were still being processed or undrawn yet that have all been halted since the judgment came out yesterday.
Bank of Uganda speaks out
In a Friday statement, BoU Governor Prof. Emmanuel Tumusiime-Mutebile said that they are waiting for a written judgment from the court in order to assess the matter.
“Bank of Uganda (BoU) has taken note of the judgment of the Commercial Division of the High Court in Misc. Application No. 654 of 2020 and High Court Civil Suit No. 43 of 2020 involving M/s Ham Enterprises and others Vs Diamond Trust Bank (U) Ltd and another, which was delivered on October 07, 2020,” the governor said.
“We await the detailed written judgment of the Court to assess its implications and to determine an appropriate response thereto, including any future actions with regard to the matter.”
The central bank also reassured all stakeholders and the general public that it remains committed to ensuring a resilient, sound and stable financial sector.