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Last month Israelis were up, Russians down, and the Dutch seemed unfazed. Yet total tourist arrivals to Turkey fell 10 percent compared with February 2015, a blow to an industry that owes $17 billion to the country’s banks.
The drop in arrivals in February, the biggest in a decade, marked a record seventh consecutive month of declines as terror attacks which have been striking Turkish cities since last summer begin to weigh on the economy.
In response, hotels are slashing prices, a sign of strain in an industry that doesn’t just account for 5 percent of gross domestic product but which has a knock-on effect on 50 related industries including banking, according to Hakan Ates, chief executive officer of Denizbank AS. The bank lends more to the tourism industry than any of its competitors.
Turkey should expect a decline in tourism revenue this year of about $10 billion, or between 25 percent and 35 percent of last year’s total, Ates said on Saturday at a summit in the ski resort of Uludag. The attendees were almost exclusively Turkish yet the hotels bore signs in Cyrillic, a reminder of the Russian tourists staying away. Visitors from the country, which used to account for 5 percent of all foreign visitors to Turkey, have more than halved since the start of last year.
Hotels are seeking to fill rooms by offering luxury, all- inclusive package holidays for as little as 90 liras ($31) per night, according to Emre Deliveli, a former economist at Citigroup Inc. in Istanbul who now runs a family hotel on Turkey’s south coast. “That’s a big hint that something’s wrong,” he said.
Tour operator Thomas Cook Group Plc’s website lists swathes of resort hotels that in May, the start of the Turkish tourist season, can be booked for less than $40.
“The banking sector has the biggest part of the burden,” Ates said. He estimates that tourism companies have borrowed $17 billion, of which $2.5 billion is due this year in principal repayments. Banks expect another $800 million in interest repayments, while the industry’s working capital requirements are another $800 million.
Repayments “used to come in via tour operators’ advance bookings, which this year will be weak,” said the CEO, whose company is owned by Russia’s largest lender, Sberbank.
Turkish banks are seeking help from the state to compensate for some of the losses, he said after meeting with Deputy Prime Minister Mehmet Simsek to discuss the issue. If the state gives hotels a few years’ reprieve on rent payments for state-owned land, redirecting that money to banks instead will make them more inclined to restructure debts, Ates said.
“We may have to get ready for a two- to three-year downturn,” he said.
This article was written by Isobel Finkel from Bloomberg and was legally licensed through the NewsCred publisher network.