FIs at risk if hotel sector is unable to pay back loans

Under the Royal Monetary Authority’s (RMA) monetary measures IV, hotels and restaurants (tourist standard/budget) got deferment of loan repayment for up to 2 years in June 2022 till June 2024 as they were identified as high risk being severely affected by the pandemic. There is just another year of deferment period left and things are not looking good.

Hoteliers worry about whether they can repay back their loans when the deferment period ends. Most hoteliers agree if the current trend continues – with just a few incoming tourists, then they will have a difficult time to repay the loans.

According to RMA’s Financial Sector Performance Review Report, as of September 2022, the service/tourism sector has the highest sectoral loans at Nu 55,595.39 million (mn) and is the highest non- performing loan (NPL) at Nu 4,877.77 mn.

Service/tourism loan is for construction/setting up, buying or expansion of service industries, such as hotels, tour companies, schools, ICT, consultancy, and other service-oriented businesses.

Talking with the officiating chair of Hotels and Restaurant Association of Bhutan (HRAB), Tshewang Jurmi, he said that it will depend on business next year. “If the current scenario continues, the hotel sector will collapse before the loan deferment period ends. The little hope we have at the moment is that government is making amends, in terms of lowering monument fees by 50 percent and selling gold to promote tourism.”

“If tourism comes back on track, we should be able to come back,” he added.

With little to no income generation, according to an inside source, hotels in border areas are drying up. With no guests at all, some hoteliers have started to sell their hotels. With over 600 hotels in the country, all of the hotels having loans, unless tourism picks up, the source reveals that the hoteliers will have a hard time repaying the loans.

Currently, hotels have the highest loans and the highest NPL and if the repayment is affected, generally, the country’s financial institutions will be affected.

If the hotels can’t pay back the loans, the country’s financial institutions will also face risks which will be alluded to hoteliers’ inability to pay back the loans and NPL.

According to a senior banker the paper talked to, FIs will be at risk if the hoteliers are unable to pay the loans. “After the deferment period, if the hoteliers are unable to repay back their loans, it will become NPL. Without good policy intervention from the government and if the current scenario goes on, there will be a high chance of financial institutions collapsing. However, within this deferment period, if the economy revives and the business picks up, they will be able to repay back.”

Last year, RMA enforced loan moratoriums in three financial institutions. This was done so as RMA deemed that the FIs had excessive and risky proliferation of NPLs. Then, according to RMA, the excessive number of NPLs posed a threat to the Bhutanese economy if it is not addressed because it negatively impacts the nation’s banking sector.

Tshewang Jurmi shared that having talked with the CEOs of various FIs, the heads have a comprehensive view of the situation where if tourism does not pick up and the hotel industry collapses, the risk exposure to FIs is high.

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