Millions of Ugandan borrowers from Supervised Financial Institutions (SFIs) have a reason to celebrate starting December 1st, 2023. The Uganda Bankers Association (UBA) has announced the cessation of the long-standing practice of penalizing borrowers who opt for early repayment of their loans.
A reliable source confirmed that this directive extends to all outstanding loans, irrespective of amount, currency, or tenor.
This development follows substantial pressure exerted by the Central Bank, specifically from Deputy Governor Dr. Michael Atingi-Ego and Dr. Tumubweinee Twinemanzi, the Executive Director of Bank Supervision.
Bank of Uganda’s persistent pressure, including a meeting between the Deputy Governor and industry CEOs on August 23rd, 2023, and subsequent correspondence from the Executive Director of Bank Supervision on September 12th, 2023, culminated in the decision by banks operating under the Uganda Bankers Association to abolish early loan repayment fees on outstanding loans during their meeting on Friday, October 13th, 2023.
A letter issued by the association on October 16th, 2023, formally communicated this resolution to the Central Bank. Additionally, on October 18th, 2023, the UBA issued a public statement confirming the discontinuation of this unpopular practice, effective December 1st, 2023.
This practice has drawn widespread public criticism and discontent from consumer organizations and the central bank alike, with arguments emphasizing the increased cost of borrowing.
Speaking to CEO East Africa Magazine in an online interview, Wilbrod Owor, the Executive Director of the Uganda Bankers Association (UBA), clarified, “Early repayment fees will no longer apply to existing facilities. Moving forward, new loans won’t be subjected to early repayment charges.”
Owor further mentioned that early repayment fees were predominantly applied to mortgages and long-term loans in the past.
The Uganda Bankers Association (UBA), established in 1981, acts as an umbrella organization for financial institutions licensed and supervised by the Bank of Uganda. Currently composed of 26 commercial banks, 2 development banks, and 8 Tier 2 & Tier 3 Financial Institutions, the UBA oversees the industry’s collective interests.
According to the CEO, The Central Bank has expressed growing concern over the escalating cost of borrowing, emphasizing its adverse impact on debt burdens and credit risk, which, in turn, hinder banks’ lending practices.
