‘Bad bank’ mooted to deal with tourism industry debt

• SLTDA says active discussions are taking place but no conclusion on setting up a ‘bad bank’
• But says tourism industry stakeholders are “very much” on board with idea of a ‘bad bank’
• Says a decision will be taken by end-August on way forward for tourism industry 
• Tourism industry debt is estimated to be over Rs.500bn, including accumulated debt

The Sri Lanka tourism authorities, led by Tourism Minister Harin Fernando, are actively contemplating on setting up what is called a ‘bad bank’ to restructure the debt of the crisis-hit tourism sector, Mirror Business learns. 

The idea of establishing a bad bank was spawned mid-last year when the tourism sector stakeholders were negotiating the extension of the moratorium extended to the 
industry loans.  

“It (bad bank) is an option that we are very much looking into. While we have not confirmed the setting of a bad bank, we have not written it off either. Active discussions are taking place; we will finalise a way forward for the tourism sector to tackle their loans,” Sri Lanka Tourism Development Authority (SLTDA) Chairman Priantha Fernando told Mirror Business. 

Bad banks are typically government-sponsored asset reconstruction companies (ARCs) set up with the primary objective of cleaning up bank balance sheets. Unlike private ARCs, bad banks are established as a one-time measure, with the primary objective of reducing the build-up of non-performing assets, post a financial or economic crisis. 

Fernando shared that by end-August a decision would be reached on the way forward, after which a proposal would be presented to the Tourism Minister, which then will be tabled in Parliament. 

According to the SLTDA chief, the industry stakeholders are “very much” on board with the idea of setting up of a bad bank, as it is viewed as a workable way forward to assist with the settlement of their loans. Fernando assured that the decision would be finalised only after a consultative process with the stakeholders is followed.

The tourism industry debt is estimated to be over Rs.500 billion, including the accumulated debt. The industry found itself in a rather tight situation in early June when the moratorium extended to 
it expired. 

The moratorium granted by the private sector banks on the loans taken by the tourism industry expired on March 31, whereas the moratorium granted by the state banks expired on June 30.  The Cabinet of Ministers gave the nod to extend the facility further. However, the banks weren’t willing to prolong the concession, as they too are under pressure with the ongoing economic crisis. (Shabiya Ali Ahlam)