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Thousands of hoteliers drowning in a sea of loans
Business owners in the hospitality industry, now entering yet another year of stagnation, claim they are drowning in accrued capital and interest on loans after availing themselves of a debt moratorium introduced by the Central Bank of Sri Lanka (CBSL) last year.
Enterprises were worse off than before they received the moratorium, a hotelier from Unawatuna claimed. He had taken a small-and-medium-enterprise (SME) loan via the Bank of Ceylon during the pandemic and then availed himself of the debt moratorium—only to find that the accrued interest would be restructured as a separate loan.
The CBSL last year directed licensed banks to grant a debt moratorium to COVID-19 affected businesses and individuals. It was introduced after the first wave of the pandemic and extended for a further six months from October 2020 and it was granted for both capital and interest.
Eligible borrowers included businesses, proprietors and persons engaged in identified business sectors, SMEs, the self-employed and foreign currency earners hit by the pandemic. But it was said that the capital and interest will be converted into a term loan. The scheme will end in March and businesses fear they will be swallowed up by piled-up payments.
But Ranjan Senanayake, the General Secretary of the Ceylon Bank Employees’ Union, argued that the relief scheme was only ever meant as a grace period for borrowers to pay off their loans, not a cancellation of dues, interest included. Banks had been expected to devise a mechanism to ease payment of accumulated interest but most were reluctant as this is one of their main income streams.
“All the hotels in the industry have been hit hard,” said Sanath Ukwatte, President of the Sri Lanka Hotels’ Association. “The small hotels and the big ones, all have their own set of challenges.”
Interest payments due on loans were placing a considerable strain on the struggling industry. “Ideally, they should have been waived off at times like this,” Mr Ukwatte said, adding that working capital grants will help the sector prepare for an influx of visitors expected after vaccinations become more widespread.
Hotel maintenance is expensive and many venues could not afford it during the pandemic. Preparing for tourists, therefore, will again require heavy inputs. But any relief granted will bring returns as the tourism industry will provide the country with a quick economic lifeline, Mr Ukwatte insisted.
He admitted that waiving off interest could cost the banks significantly. Therefore, the Government will need to reduce bank taxes by one to two percent so they could recover losses incurred this way.
Mr Ukwatte also acknowledged the reductions already made. A further cut in the statutory reserve ratio (SRR)–reserve of funds banks are expected to maintain with the Central Bank—would increase their liquidity.
“The industry took the brunt of the intelligence failures that resulted in the Easter attack as well as the pandemic,” he said. “Therefore, it is only right that neither the hospitality industry nor the financial industry be penalized.” Concessionary loans for hard-hit industries through international NGOs were also worth exploring.
“A lot of places are struggling,” another hotelier said. “If nothing happens, they will close by the end of the year.” The occasional local parties that check-in on some weekends weren’t enough to keep afloat.
In January, before every long weekend, the police came on TV and warned of antigen tests being carried out on the highway. So most reservations are cancelled at the last minute all stocked-up supplies gone to waste. This “scare tactic” hit venues hard, the hotelier related.
Many medium to large businesses have fewer challenges as many have chosen to become quarantine hotels. Of the 2,895 hotels registered with the Sri Lanka Tourist Development Board, 2,317 were SMEs. Around 200 venues are certified as ‘safe-and-secure’ under the quarantine scheme.
Sixty-five percent of certification was provided to hotels with fewer than three stars, said Kimarli Fernando, Sri Lanka Tourism Development Authority (SLTDA) Chairperson. This accounts for 31% of the sector as a whole.
The Sri Lanka Tourism Development Authority (SLTDA) has distributed one-off grants of Rs. 20,000 and Rs. 15,000 to all registered tour guides and drivers. It had also appealed to the CBSL to extend the debt moratorium and is collaborating with the regulator to provide relief on lease payments for tourism-related vehicles. “We were also able to extend due dates on utility bills and the delay the excise on liquor licenses for another year,” said Mrs Fernando.
The Authority has now flagged the issue of higher local authority taxes applicable to the industry. It continues health protocol training and has since received the World Travel and Tourism Council’s Safe Travel Stamp, the first in the region to do so.