Uganda clarity on foreign bank loans good for EAC

Uganda’s central bank this week made an important pronouncement that should calm nerves of Kenyan banks doing business in the neighbouring country.

The regulator clarified that its regulatory powers are limited to entities registered in Uganda.

“It is not mandatory for a foreign bank to establish as representative office in Uganda in order to conduct lending,” the Bank of Uganda said in a statement.

The clarification followed a contested court ruling that declared some syndicated loans illegal because the Kenyan lender involved did not have a Ugandan banking licence. The Kenyan bank had been sued by a loan defaulter which argued the credit was illegal since the lender did not seek authorisation from the Bank of Uganda.

Although the Bank of Uganda’s statement doesn’t override the ruling, its position enhances the local bank’s chances of success at the appeals court.

The suit had rattled the Kenyan banks with businesses in Uganda, prompting them to consider cautionary measures.

Other regulators across the region should borrow a leaf from the Bank of Uganda and clarify regulations that are holding back the East African Community (EAC) from realising its dream of seamless cross-border businesses. Traders from the five EAC countries regularly protest the extra costs they incur due to delays at various crossing points as custom officials read from different scripts.

Since the outbreak of the coronavirus pandemic truck drivers have been forced to spend weeks at the border points owing to conflicting testing regulations. A 2017 survey showed that countries lose not less than five percent of their revenue due to inefficient border procedures. That is money that could be channelled to development projects. And then there are the unharmonised levies that make a mockery of the East African customs regulations.

Traders often complain about being slapped with enhanced levies without notice as some states become increasingly protectionist. This lack of clarity pushes up the cost of doing business in the region. The sooner authorities clear the air, the better for the EAC’s economy.