Tropical Bank Uganda Limited, in partnership with its client IT Office [U] Limited, faces mounting pressure after failing to repay a loan of over Shs 6.84 billion, which has now swelled to Shs 21 billion.

The loan was initially secured from Prime Finance Company Limited in March 2020, and the situation has sparked concerns over the bank’s internal mismanagement and has tarnished the reputation of Uganda’s banking sector.

On March 13, 2020, Prime Finance Company Limited extended a Shs 5.7 billion loan to IT Office [U] Limited at a 5% interest rate per month, to be repaid within four months.

Tropical Bank Uganda had provided a written guarantee to repay the loan if IT Office [U] Limited defaulted. However, more than four years have passed, and no repayment has been made, leading to the debt’s accumulation.

How the Deal Went Sour

In February 2020, IT Office [U] Limited sought a loan from Prime Finance to pay off its outstanding liabilities with Tropical Bank.

The loan agreement was underpinned by an irrevocable undertaking from Tropical Bank, which guaranteed repayment of both the principal and interest by July 9, 2020.

Despite these agreements, the bank has since refused to honour the repayment or transfer IT Office [U] Limited’s collateral to Prime Finance, citing fraud allegations in the transaction.

Internal staff at Tropical Bank, including the Executive Director, Head of Credit, and Legal Manager, have refuted these claims of fraud.

They maintain that the loan agreement followed internal procedures and that their actions were in the bank’s interest. These officials had signed the undertaking and sealed it with the bank’s official seal, ensuring the legitimacy of the transaction.

Tropical Bank’s Role in the Financial Crisis

The Shs 5.7 billion loan was meant to help IT Office [U] Limited settle its debts with Tropical Bank and secure another Shs 10 billion loan from the bank. The funds allowed the company to clear its liabilities and position itself for further financing.

However, despite benefiting from Prime Finance’s funds, Tropical Bank has refused to repay the loan and has sought refuge under claims of fraud.

Prime Finance sought intervention from the Bank of Uganda (BoU), which advised the finance company to pursue remedies under the Contract Act 2010, acknowledging that Tropical Bank had indeed guaranteed the loan. Following BoU’s advice, Prime Finance filed a lawsuit in December 2022.

In August 2021, the court ruled in Prime Finance’s favour, ordering Tropical Bank to repay Shs 6.84 billion plus 5% interest per month until full repayment. However, Tropical Bank has yet to comply with the court’s ruling.

Internal Strife and Management Issues

The loan dispute is further complicated by internal conflict within Tropical Bank, which has affected its ability to manage key transactions. Infighting among top managers has divided the bank, with some executives allegedly seeking to undermine the former Executive Director and his team.

This internal turmoil has led to resignations and further disrupted the bank’s operations.

Tropical Bank Uganda’s refusal to repay the loan, despite benefiting from the transaction, and the ongoing management conflicts have drawn widespread criticism and raised concerns about governance issues within the institution.

The bank, which is majority-owned by the Libyan government through the Libyan Foreign Bank, now faces reputational damage as well as potential legal and financial repercussions.

As Tropical Bank Uganda continues to delay payment, Prime Finance Company Limited is left in limbo, with the debt continuing to grow, and questions remain about the bank’s future and credibility within the Ugandan financial sector.