Banking sources in Kenya are now pegging the potential of non-performing loans in the second half of this year to as high as 102 billion Kenya shillings, a staggering amount which contradicts, if coming true, the projections of the government as to economic growth. The banks included the tourism sector on their list of high risk enterprises, a sure sign that they expect more bad news for the sector which has been in downturn mode over the past two years. Over the past weeks, bad loans rose by over 7 billion KShs which translates to a plus of nearly 7 percent though it could not be ascertained what amount of defaulting loans was attributed to the tourism and hospitality industry. Faced already with reduced incomes in the face of stronger competition, banks are now apparently tightening the screws on overdrafts and new loans, a situation which according to coast tourism and hospitality businesses may have a serious impact on their ability to stay afloat.
A report published by the Central Bank of Kenya confirms this trend with tourism and transport named as two sectors which are very likely to produce additional new loan defaults. While no bank has until now resorted to foreclose hotels and resorts at the coast such action, however, now seems more likely, even though the first such action will no doubt trigger a domino effect. Putting resorts into receivership, however, is a disputed measure as most receiver/managers are then faced with a lack of connections in the key market places and less likely to be persuaded to offer rebates and discounts when all they care for is to balance the books. Selling resorts in receivership through auction or direct sale is also not an easy call to make as such market conditions as experienced at the Kenya coast over the past year-and-a-half have left potential investors shy of committing funds when a return on their investment may be years away before a full recovery drives occupancies up again.
With this added downside now looming large, the pressure is growing on the government to make meaningful gestures and commitments vis-a-vis low taxes, removal of VAT on tourism and aviation services, and added financial incentives. In particular, a sharp increase is needed in funds committed for marketing the country – some tourism stakeholders have suggested that around 2 billion shillings may be the right figure to effectively cover all existing, emerging and new markets with a sales drive – so as to counter the effects of negative publicity and nervous market perception about Kenya. Leading tour operators abroad are watching the developments and incidents of the past weeks and in particular TUI in the UK has already extended their halt on charter flights from initially October this year to April next year while they monitor events in the country.