Why hotels, transport lost bank credit

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By Josephine Christophe

Dar es Salaam. Despite various parameters indicating that tourism is on the right path to recovery, the latest data shows that commercial banks are still hesitant to extend loans to the hospitality industry.

The Bank of Tanzania (BoT) indicates in its July 2022 Monthly Economic Review (MER) that while credit growth to the private sector reached a five-year high of 19.4% in June 2022, the transport, communications and hospitality were still in the doldrums. in extending credit.

The sectors that were increasingly receiving bank financing were agriculture, mining, micro, small and medium enterprises, trade and manufacturing.

By June this year, credit to hotels and restaurants had fallen to 5.6% (minus 2.6%) per annum, while that of transport and communications had fallen by 0.7% (minus 0.7% ).

In May, activities also recorded annual declines of 9.1% and 8.9% respectively for the hotel industry and the transport and communication sector.

The government’s focus, coupled with rising global food demand, continues to drive more investment in the agricultural sector, as credit to bank operations increased by 42.1% over a period of a year, according to BoT calculations in their Monthly Economic Review.

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Credit to mining and quarrying activities increased at an annual rate of 36.5%, personal credit to 27.5%, while credit to commercial activities increased by 25% and manufacturing by 23.5%.

Although this is in the single digits, another activity that is seeing credit growth is building and construction at 9.7%.

Of insightful bankers, Managing Director of KCB Tanzania, Mr. Cosmas Kimario, said that the banking sector had offered good support to the hospitality sector over the past two years when the Covid-19 pandemic was at its critical point, especially through loan restructuring. and the rescheduling of payments as advised by the BoT.

He said that being one of the hardest hit sectors, the BoT in 2020 urged banks and financial institutions to take heed that borrowers might face financial hardship which could lead to non-compliance. of their contractual obligation to repay their debts.

“The sector has also been in survival mode, maintaining its activity and less expansion has been achieved in recent years. Same thing for the transport sector where there was less traffic and freight volume,” he said.

On his part, the Managing Director of the Hotel Association of Tanzania (HAT), Mr. Kennedy Edward, said the rate of acquisition of new loans for hoteliers was a result of the tough business the sector has been experiencing in from 2020.

He said that as the industry faced booking cancellations, declining revenues, a huge liability burden, less and less credit was being given by banks to the sector.

“In our business, loans are of enormous importance, especially in raising capital for expansion and growth. The rate of access to new loans is decreasing because some companies have also faced financial accrued interest on previous debts,” he said.

Analysts say the disparity shows the two sectors were still constrained by the pandemic and their sustainability risks have increased further due to ongoing political tensions in Europe.

Their connection to the tourism sector is also another factor as businesses in this area have been severely affected, impacting economies, livelihoods, public services and opportunities on every continent.

A veteran banker and financial adviser, Mr Kelvin Mkwawa, said that in the transport and hospitality sectors, risk was still high.

These sectors, he said, were considered seasonal sectors, meaning they are not fully profitable throughout the year, so cash flows are not consistent.

“This element of risk premium in these sectors makes banks reluctant to lend aggressively. In addition, banks are still struggling to combat NPLs caused by Covid-19 on these sectors”,

“Most banks have found out how vulnerable they are on lending to the hospitality and transportation sectors. Realizing the collateralized securities is a long process that could take years,” he said.

Mkwawa said analysis of companies in these sectors show inconsistent cash flows, which is one of the main reasons banks are reluctant to lend to these sectors.

Bankable Tanzania co-founder and partner Ivan Tarimo said the pandemic has also led to limited expansion of these businesses in terms of new outlets, for example in hotel and restaurant businesses.

“The risk appetite of these businesses for banks has declined, and due to the pandemic it has become more difficult for staff at companies who want to let say open a hotel to convince banks to take the risk of their lend,” he said.

Mr. Tarimo said that in the transport and communications sector, the pandemic was still experiencing headwinds, as logistics activities and related services have declined significantly over the past two years.

“Banks have also suspended some of the finance services such as some of the banks that were providing Vehicle Asset Finance (VAF) during Covid-19,” he said.

The VAF is the short and medium term financing to finance the purchase of movable assets, such as motor vehicles, for your business.

Bullish outlook

Meanwhile, the tourism sector, which is closely associated with these activities, is said to be thriving in Tanzania, with the number of visitors reaching 458,048 during the period of January to May 2022.

According to the National Bureau of Statistics (NBS), this equates to a 44.4% increase from the 317,270 people who visited the country during the same period in 2021.

And, according to Mr. Kimario, currently the sectors were viewed differently due to the recovery and growing demand, which meant that companies in the transportation and hospitality sector were going to need additional credit to respond to their new request.

“The government’s supportive policies and the impact of the Royal Tour project are now visible as the tourism sector is recovering strongly, with international arrivals increasing at an impressive rate,” Mr Kimario said.

In the logging industry, Mr. Edward says the government has also helped create policies that allow the company to exploit the potential it offers.

“Right now hoteliers are focused on meeting the current demand that results from the postponement of booking made in 2020, after that and possibly from next year onwards with demand picking up we could seeing businesses acquire new loans for expansion,” Edward said. .

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