Commercial bank customers in Uganda can now pay off their outstanding loan balances earlier than scheduled without incurring any charges.

This decision was made by the Regulated Financial Institutions under the Uganda Bankers Association (UBA) and communicated to the Bank of Uganda last week.

The bankers’ decision, announced by Wilbrod Owor, the Executive Director of UBA, will be implemented on December 1, 2023. This is in accordance with the minimum 30-day notice requirement for customer notification by supervised financial institutions. Additionally, it was agreed during the meeting that member financial institutions should handle communication with their customers in the most appropriate manner.

This decision was reached after discussions between the chief executives of the banks and the regulator in August and was finalized at the bankers’ monthly CEO meeting last week.

“This correspondence serves to notify you that… a decision was reached to drop or abolish the practice of early loan repayment fees charges on outstanding loans across our membership/industry,” reads the letter by the bankers association to the Executive Director Supervision at BOU.

The practice of charging for early loan repayment is aimed at ensuring that the banks do not incur much less earnings than what they have forecast in view of the loans issued. This, they say affects their profit projections and cashflows. However, analysts say that making such a charge on a borrower is the same as punishing them for working hard to return the borrowed money.

UBA says the move will enable the private sector to grow more appetite for credit and ability to repay, hence reducing the risk of nonperforming assets.

“The decision to halt early repayment fees is aimed at facilitating the loan market with flexible options and alternatives in constraining economic circumstances and by extension contributing to the growth of private sector credit,” says UBA in a release.