UBA: No more fines for repaying a bank loan early

Kampala, Uganda | THE INDEPENDENT | Commercial bank customers can now opt to pay their outstanding loan balances earlier than scheduled, without fear of being charged for the early clearance. This follows the decision made by the Regulated Financial Institutions under the Uganda Bankers Association (UBA) last month and communicated to the Bank of Uganda last week.

The decision by the bankers will take effect on December 1, 2023 “in conformity with the minimum 30-day notice requirement for notification of customers by supervised financial institutions,” says Wilbrod Owor, the Executive Director, UBA. The meeting further agreed that member financial institutions handle communication to their customers as appropriately as possible.

The matter was first discussed in August between the chief executives of the banks and the regulator before it was concluded by the bankers at their 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.