After a 2-year tourist boom, hotel NPLs practically unchanged

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By Stelios Orphanides

After two successive years of a strong increase in tourist arrivals, the hospitality industry has done little to pay back its more than €1bn in non-performing loans, data show.

In December 2016, hotel and restaurants reduced their non-performing loans by merely €323.8m in two years, according to Central Bank figures, with the bad debt ratio of the hospitality industry remaining at 49 per cent, comparable to that of the overall figure.

tourists airportIn 2016, tourist arrivals rose 31 per cent compared to 2014, to almost 3.2m, an all-time record.

According to Cystat figures, revenue from tourism rose last year almost 17 per cent, to €2.4bn, compared to 2014.

Hoteliers however, benefited from the tourist increase less than the arrival figures suggest, as the rise in revenue over the past two years was smaller, said Zacharias Ioannides, head of the Cyprus Hotels Association (CHA), a group representing roughly 300 units.

In addition, hoteliers are forced to re-invest “a significant portion” of their revenue in “considerable” extensions or upgrades of existing hotel units, he said. “It is an imperative made necessary by our operators demanding modernisation”.

Non-performing loans in the Cypriot banking system account for roughly half of total credit and stood at €23.7bn in December, according to central bank figures. Directly or indirectly, tourism accounts for roughly a quarter of the Cypriot economy which emerged from a prolonged recession in 2015 and expanded last year by 2.8 per cent.

The hospitality industry is a major employer in the economy and employs nine per cent of total workers in the economy.

A banking source who spoke on condition of anonymity citing the lack of authorisation to discuss the matter with the media, said while there is indeed pressure from tour operators on hoteliers to modernise their units, their willingness to engage in restructuring negotiations and repay their debts is lacking.

“There are many strategic defaulters among them, worse compared to developers,” the source said. He added that the reduction of hoteliers’ non-performing loans was mainly the result of debt-to-asset swaps as “banks are increasingly using the new instruments they have at their disposal”.

These include, in addition to the new foreclosure and insolvency legislation, the new possibilities given by the law to banks to modernise, expand, or modify immovable property they acquire as part of restructuring agreements to effectively operate it, the source said.

To highlight the shortfalls in corporate governance in the hotel industry, the banking source said that often major shareholders of hotel chains consider themselves as operators of family enterprises and enter agreements with private companies they own at the expense of the minority shareholders.

The delinquency of borrowers in the hospitality industry, combined with opportunistic practices in their human resource management in the form of hiring workers over the summer season to fire them in the winter, are signs of “short-term vision,” an economist commented.

Musyck“This way, we don’t promote forms of sustainable tourism,” Bernard Musyck, who teaches at Frederick University, said in a telephone interview. “You cannot create value in the tourism sector by applying this opportunistic behaviour which is typical of the Cypriot mentality”.

Hotels are already facing a shortage in skilled workers, which is a result both of the increased demand for holiday services in Cyprus which is expected to continue also this year, as well as the absence of genuine opportunities to embark on a career in the hospitality industry.

With only one third of hotel workers benefiting from the provisions of the collective agreements negotiated with unions, the rest has to usually settle for a monthly income of €700 over the summer months, which translates to an annual income of around €5000.

CHA’s Ioannides defended the human resource management practices at hotels, saying the seasonality forces them to fire staff in the winter season when arrivals drop to one tenth of the average of the summer months. The hotel sector managed to extend the summer season by opening hotels in March and closing them in November, instead of April and October respectively, he added.

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About Author

Stelios Orphanides is a journalist at CyprusBusinessMail.com. To contact Stelios Orphanides: [email protected]

  • Bruce

    Hoteliers with their large increase in receipts from tourism need to pay their fair share of taxes and service punctually their debt obligations. Surely they now have the ability to pay their financial obligations and bankers and Ministers can not continue to turn a blind eye to tax evasion and strategic debt defaulting.What is Minister Georgiades doing in his promises to combat tax evasion,especially against the developers and hoteliers? And one wonders how the the Bank CEO’s and Directors are catering to the big boys with their debt write-offs and other forms of debt restructuring! How much of the reported tourism revenue of the Republic is kept abroad and doesn’t filter into the rest of the economy because of all-exclusive hotel packages and lengthy diversions of tourists into the occupied area?

    • Cydee

      You’ve hit on a sore, but relevant point. Boasting a full-up hotel doesn’t count for much when the prices and the profits are regulated by the likes of Thomas Cook.
      Well past time that CTO took a proper stand in the tourism market.

      • Bruce

        Agree, but Cyprus hoteliers are more than co-operative in allowing foreign agents and tour operators to keep part of their due receipts outside Cyprus.

  • Pullaard

    The bank should have the right to repossess all properties, including or especially hotels, with NPLs and sell them over the heads of the shareholders, regardless of who those shareholders might be. Furthermore, hotel books should be inspected and any found paying under the legal minimum EU wage should be fined on the spot, again out of the shareholders’ own pockets if necessary. For all the government’s promises and agreements with Troika, backsliding is still the name of the game and these NPL’s and the continued profligate spending are sending us careering toward yet another handout.

    • Hotel Worker

      There is no legal minimum EU wage, but it would be a great idea. As far as I knows it varies enormously between individual countries, some countries have none, and Cyprus only has a minimum wage for shop assistants and kindergarten teachers.. In some countries (UK, Germany, Ireland), their legal minimum wage is equivalent to an above average wage in Cyprus.

      • Pullaard

        I thought there was a minimum wage under the European Court of Rights but various countries, Cyprus included, chooses to ignore it and the EUCR does nothing about it. My error.

  • JS Gost

    Almost laughable that anyone would expect the situation to change. Only when the banks actually do something will things change. To honour debts there has to be honour in society; honour like honesty, respect, lawfulness, accountability and responsibility seem to be missing. Without these words like investment, trust and friends seem to go missing to. Just ask our Greek friends about this as we seem to be following over the cliff edge about 3 years behind them.

  • desres

    ‘major shareholders of hotel chains consider themselves as operators of family enterprises and enter agreements with private companies they own at the expense of the minority shareholders’
    Major shareholders’ run the government!

    • Cydee

      As in most western governments.

      • desres

        Most western government MPs have to declare their outside interests; Cyprus tried a voluntary system and only 5 MPs registered! My point is that in such a small country as ours certain families/developers control the system to the detriment of the majority.

  • Neroli

    As Bernard says…. Cyprus mentality!

  • Tony

    even though the hotels have had it “Good” for the last 2 years there is not a chance in hell they will pay anything towards their NPL. why would they? They are keeping that money under their mattress for the next crisis.

  • Barry White

    The writer clearly doesn’t understand that in Cyprus the “primary” hotel industry prperties are exempt from all manner of fees, payments, loans and taxes. Why? Just because.

  • Didier Ouzaid

    Give that head of the Cyprus Hotels Association a few more minutes and he’ll also explain to you that staff payroll is keeping the profits down, with all the exceptional perks and benefits they get.

    These business are like weather vanes anyway. They could actually tell you that they’re under-investing because of loan servicing, they’ll tell you they wont improve working conditions because of utility costs, etc. etc.

    They dont pay because they dont wanna pay and they’re somehow allowed not to pay, that’s it.

    • SuzieQ

      Your last sentence says it in a nutshell!

  • Veritas

    “combined with opportunistic practices in their human resource management in the form of hiring workers over the summer season to fire them in the winter, are signs of “short-term vision,” an economist commented.”
    One reason as good as anything, why many young people prefer a solid, well-paid career in the public sector instead. Don’t put all the blame on Pasidy for this money eating “cancer”.
    The majority of hotel owners/management in Cyprus never understood, it seems, the value of keeping staff on a long term base, by offering them an attractive employment.
    There isn’t anything better for the long term reputation of a hotel to have fulfilled coworkers that will create the foundation for satisfied clients.

  • Bystander

    Amazing! How come?

  • Hotel Worker

    What good is a “collective” agreement if it only applies to a third of all workers in the hotel industry? Preferential conditions for the privileged one third and exploitative conditions for the unlucky two thirds? This is where the unions really fall down in their job, by completely ignoring the (mostly foreign) workers who are not permitted by their employers to join a union and therefore cannot benefit from the collective (or should we call it “selective”) agreements. I would go as far as to call it outright and institutionalized discrimination against foreign workers, although some Cypriots are affected too (mostly younger workers).

  • Philippos

    BUNKUM. Hoteliers have had “NPL’s” for 40 years, good and bad years. Many of the old hotels today still have much of their original loans unpaid or restructured and now the Owners cannot raise the money for refitting or improvements which is why Cyprus is so looking “tired’. The Two Awesome years referred to were not so. There were just more people spending less, so where’s the joy in that. More wear and tear to the hotels for no additional income let alone profit. Yes the foreign workers are squeezed, but look at the absence of quality and training adding to a weaker overpriced product. The Unions, I might add have been no friend to the foreign workers, being paid off to “Keep Quiet” about the foreigners so long as they are forced to join the union or have the dues deducted at source from their salaries whether they join or not. The Industry is in decline, saved from time to time by accident, like terrorism elsewhere, but our time will come, of that you may be certain.