Some commercial banks that seized property from loan defaulters in hotel industry have disposed off the properties at lower prices than the actual market value.
This comes after the mid-sized hotels were hit by countrywide auctions, which swept through the industry, following failure to repay bank loans.
“Banks are not in the business of selling properties, it is possible that banks are making some losses, many small hotel owners got their projections wrong, it’s unfortunate development for the industry, both the banks and owners are incurring losses,” said Maurice Toroitich, managing director of KCB Rwanda and chairman of Rwanda Bankers Association.
He said the only action, which can normalise the situation is an agreement between the banks and individual hotel owners to explore practical repayment options.
“The banks understand that when a business is new, some projections can go wrong, banks can help their clients through interventions like changing the repayment programme. This can be arranged especially, if a customer demonstrates that there is a rationale for this restructuring,” he said.
If no deal is reached and banks continue selling repossessed property at losses, the burden will be passed onto future borrowers, experts warned.
“The problem is that we don’t have a very good secondary market for assets, if we had one, we couldn’t sell at losses,” said Naibo Lawson, chief operating officer of Bank of Kigali.
“The chances of getting a buyer who is ready and has done the necessary preparations to buy and run a hotel are low because there is an absence of a good secondary market for that,” said added.
“Sometimes we wait to get good buyers. Maybe some of our clients want to venture into the hotel industry,” added Mr Naibo.
Regarding the unpleasant situation with the hotel industry, he said the situation is not as bad as it sounds.
“I know the hotel industry is strained at the time, but it’s really not as bad as it sounds. It is true we have auctioned some. It’s really been dependant on how one is able to finance their business plan and how one is able to go to their bank and tell them the reality on the ground,” he said.
“Every customer is different in a way they run their business, most of those crying are those who did not plan their business and activities well, there are some hotels currently generating revenues in the same market and expanding.
“It all depends on how you do your planning and implementation of your business, and if you work closely with your bank, all this can be minimised,” added Mr Naibo.
More than 100 medium-sized hotels were recently reported to be up for auction across the country by their respective banks, following failure to pay back the loans.
According to Mr Toroitich, besides failing to pay back the loans, many hotels owners have been rigid and have not explored options such as finding investors to buy shares in some of these banks, and co-own the hotels, so as to get funds to pay the banks.
“What is happening is that hotel owners want to remain sole owners, yet they can’t pay back the loans, this prevents them from exploring other options, and end up losing,” he said.
According to the August Monetary Policy and Financial Stability Statement, the banking sector has remained strong, increasing by 13 per cent between June 2014 and June this year.
Total assets amounting to Rwf2 trillion were dominated by loans to private sector and investments in financial securities, which accounted for 57.5 per cent and 13.5 per cent of the total assets respectively.