Thousands of hoteliers drowning in a sea of loans

• Published date: 21 March 2021
• Publication title: Sunday Times

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...