RMA Office

RMA worried by dramatic increase in hotel loans

Hoteliers engage in price wars with empty rooms and loan repayment pressures

According to the Royal Monetary Authority (RMA), the service and tourism loan, comprising mainly of hotel construction loans amounted to Nu 27.935 bn as of November 2018 with the growth rate of 27 per cent over 2017.

This has made the loan in this sector second only to the housing and construction sector which is Nu 28.383 bn.

The total loan portfolio as of November 2018 is Nu 117.973 bn showing that hotel loans are now the second biggest  chunk of the total loan portfolio.

This is a dramatic increase compared to five years ago in October 2013 when the service and tourism (hotel) loans component was only the fifth biggest component of the loans.

In 2013, of the total loan portfolio of Nu 56.382 bn, housing was 15.465 bn, manufacturing was 9.965 bn, personnel was 9.978 bn, trade was 7.270 bn and finally service and tourism was only 6.875 bn.

This means that in the last five years the hotel loans have grown the fastest of all loans tripling itself within five years.

RMA is of view that the dramatic increase in the loans on hotels and resorts is a worrying development. “The Royal Monetary Authority during the recent board meeting discussed on the issue and decided that the Department of Financial Regulation and Supervision (DFRS) under RMA will come up with a comprehensive study on this,” said an RMA official.

According to the record by the Regional Trade Office, Thimphu, there are currently about 397 hotels in the Thimphu region which includes Thimphu, Paro, Punakha, Haa, Wangdue Phodrang and Gasa.  Of this 163 are international or tourist standard hotels and 234 are budget hotels.

There are 98 standard hotels and 188 budget hotels in Thimphu, Paro has 55 standard hotels and 144 budget hotels. Wangdue has 13 standard hotels and 70 budget hotels followed by Punakha with 24 standard hotels and 34 budget hotels. Haa has 3 standard hotels and 7 budget hotels while Gasa has 1 budget hotel.

According to the TCB there could be 90 new hotels coming up in the next three years just within Thimphu and Paro.

For construction of hotels and resorts pertaining to the services and tourism sector, banks offer both term loan and overdraft facility as required by them for maximum tenor of 20 years. Banks offers loan at an interest rate of around 10.85 per cent.

Hoteliers worried about empty rooms, loans and a rate war

Many hoteliers in Thimphu shared that with the increase in the number of hotels, particularly in Thimphu, most hotels in Thimphu are finding it difficult to sustain.  Seeking anonymity, a hotelier said, “When the number of hotels in Thimphu increases, small hotels like ours suffer and it becomes very difficult to sustain. When new hotels come in, we have to reduce the price or we will not receive any guest. It affects our business”.

An employee at Hotel Osel in Thimphu who is also a focal person said, “With more new hotels coming in, we have observed that most visitors prefer new hotels”.

She said, “Most hotels in Thimphu run at a loss during lean tourist season where they receive only few number of tourists. Since there are many hotels now, the visitors have the choice to choose which hotel they want to stay leaving some hotels vacant.”

“During the lean season, it becomes very difficult for hotels to repay the loans as much of its money received is spent on paying the salary of the staffs”, she added.

According to the General Manager of Druk hotel in Thimphu, “Hotel construction is increasing and most of the hotels are constructed based on the arrival of regional tourists.”

He said, “An increasing number of hotels have resulted into rate war or currency war where one hotel charges price lower than other hotels to gain more guests. Rate war will prove to be a disaster for hotels in Bhutan.”

“I am sure many hotels in Thimphu are finding tough time repaying the loan as the salary or wages for its staffs are also increasing,” he added.

On the other hand, tour operators in Thimphu are happy with more new hotels coming.

The owner of Bhutan Travel Adventure said, “In Thimphu there are many hotels and many under construction and increasing hotels will have only positive impact on us because we can provide choice to our guests.”

Another tour operator said, “If there are more number of hotels, it would benefit us because sometimes during peak tourism season, especially at Tshechus, a huge number of tourists arrive at the same time and if more hotels are there, it can accommodate all the tourists.”

TCB’s information and forecast plans

The Tourism Council of Bhutan (TCB) will ensure that in coming one to two years, the hotels will be constructed based on the forecasted number of tourists arriving in the country which is expected to bring down the number of hotels in future.

The numbers of hotels are increasing not just in the capital but also in other parts of the country like Paro and Punakha.

The Director of TCB, Dorji Dradhul said, “The construction of tourist standard hotels should happen based on the forecasted number of tourist arrival in the country. But so far this is not happening; this is not just in the tourism sector but also in other sectors where information gap is a challenge. In the first place there is inadequate information and even if we have it, it is not effectively shared among the stakeholders.”

The tourism sector is working on a new system or strategies where it wants to improve the information system.

TCB is planning to carry out a comprehensive study which would project the total number of tourist arrival in the country for a certain period and also know how much hotels are required.

He said, “Even if we want to give advice or recommendation, we cannot due to the lack of information. We can make recommendations but we cannot provide the liscence as it is provided by the Ministry of Economic Affairs. From TCB, we can make the recommendation if there is information.”

“Now this will be streamlined and the tourism sector will be able to tell that each region can have this much hotels in the given time”, he added.

The Director also said, “Though there is increasing number of hotels coming in, we cannot be certain. In the past, people were alarmed that more houses and apartment were being constructed in urban areas especially Thimphu. But now all the houses were occupied and in fact there are not enough houses with more people living in Thimphu. The same thing might be with hotels, right now we might think that so many hotels are being constructed but in the future if more tourist come in there might not be any problems as we can see that every year tourist arrival is increasing”.

He said that the construction of hotel is concentrated in urban cities like Thimphu, Paro, Punakha and Bumthang but in the 12th Five Year plan, TCB shall promote tourism in eastern and southern Bhutan which includes construction of more hotels in the east and south.

Water and sewage issues

Thimphu Thromde’s Nakphel Drukpa who is the head of Water Division said, “Thromde acknowledges that there is an increasing number of hotels in Thimphu and people are also worried that with the increase in the number of hotels, the demand for water will also increase but we want to assure people that Thimphu thromde is capable of providing adequate water to hotels too. Water in total depends on the number of beds and chairs. Thromde provide 135 liters of water per bed per day and 70 liters per chair per day”.

“If we have water capacity of  only about 20 MLD which is the situation at present, it might not be sufficient but the additional 10 MLD from Dodena scheme will solve this problem. The Dodena water supply will be commissioned on February 23 but it will not be operational fully. If we provide 10 MLD, there shall be excess water against the requirement,”he added.

He said, “Whatever you supply in, it will come out as waste water, if you put in 100 meter cubic of water, 80 per cent of it will come out as waste water and we need to address it”.

He said that in order to ensure that this waste water is treated, they have adequate waste water treatment plants at Dechencholing, Taba, Jungshina, Babesa, Yangchenphu and Lanjophakha and two ongoing treatment plants at Babesa and Hejo.  Thromde will also construct additional treatment plants at Samteling, Pamtsho and Semtokha.

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