UGANDA, Kampala | Real Muloodi News | Banks have recommended that the Bank of Uganda and Ministry of Finance look into the Mortgage Regulations and consider amending the law to raise the deposit to 50% in disputed loan cases.
The bankers said, “Increase the deposit from 30 per cent to 50 per cent for pending disputes [related to loan recovery] in court. Regulation 13(1) of the Mortgage Regulations provides for 30 per cent, while Regulation 13(5) provides for 50 per cent. Both should be at 50 per cent.”
Commercial banks claim lengthy disputed loan court cases, which often last between five and ten years, are challenging their work. They argue that the current 30% deposit is too low compared to the principal.
While launching the International Centre for Arbitration and Mediation 2020-23 strategic plan in 2020, Mr Patrick Gimara, a board member of the centre and former Uganda Law Society president, revealed that about USh5 trillion was locked up in commercial disputed loan cases, with some cases lasting ten years without resolution.
The Commercial Court receives about 2,000 cases every year, with only half the annual disposal level.
According to the 2013 annual report, the Commercial Division of the High Court received 2,417 cases; 1,747 were disposed of.
Still, the backlog grew to 4,165, about a 22.6 per cent annual increase.
The trend creates a problematic position for commercial banks, which depend on deposits and borrowed money to offer money lending services.
Hence, banks propose the Ministry of Finance and Bank of Uganda review and amend the mortgage regulations to 50 per cent deposit. Increasing the deposit would enable continued lending and reduce liquidity challenges because of money tied up in court cases.
Under Uganda Bankers Association (UBA), banks are seeking reforms with the deposit and proposed several other reforms aimed at improving the banking sector, including reviewing and amending fundamental laws and regulating new financial components covering digital financial services legal, governance compliance, etc. UBA submitted the proposal to the Bank of Uganda, and they are currently under review.
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