Market Gaps on Access to Finance - Bank of Valletta

Economic sectors Current financing needs Current financing options Scope for financial instruments
Hospitality
The last two years’ (2011 and 2012) tourism
figures are encouraging in terms of number of
arrivals, but still reflect high seasonality and
income volatility, and falling tourist average stays.
In addition, competition from nearby
Mediterranean countries has further pushed down
room rates. The sector often complains of
shrinking margins 100 .
The sector is currently focusing on improving the
tourist experience to reflect a better usage of
Malta's historical infrastructure. This is a priority
at the various service provision levels, including
accommodation, dining and entertainment.
In terms of the restaurant sector, there has been
strong demand for funding, especially for niche
services such as Maltese traditional restaurants
and specialised cuisine. Other niche/ specialised
tourism services relate to rural tourism (upgrading
of town houses and farm houses on our towns and
villages, upmarket guest houses 101 ) and medical
tourism.
Hotels have also applied for various schemes to
upgrade their premises. This is especially the case
for three and four star establishments.
Year-on-year growth in sector
Falling average tourist stay
Significant competitive pressures pushing down
prices and squeezing margins
Upgrading initiatives underway
Focus on niche tourism
Costly refurbishment
Similar to the manufacturing sector, commercial
bank overdrafts/ loans represent the current main
source of finance for this sector. This is facilitated
by the fact that the premises would be used as
collateral. Start-up restaurants are also generally
funded through this traditional source. In addition,
the local market has also provided soft loans,
interest rate subsidy schemes, and loan
guarantees. Given the significant importance of
tourism for the local economy through direct and
indirect multiplier effects, Government has also
stepped in at various stages to provide direct
assistance to the hotel sector and the related
airline sector (e.g. Interest Rate Subsidy Scheme
for the Refurbishment of Hotels, Accommodation
Facilities & Restaurants, Soft Loans for Energy
Efficiency, MTA ERDF schemes).
Given the dynamic external environment,
Government is likely to continue adopting this
policy in order to safeguard local jobs. The Maltese
tourism policy also provides scope for further
assistance to niche areas within this broad sector.
A few hotels have also sought financing from the
capital markets (equity and corporate bonds).
Reliance on bank lending
Strong banking relationships
Significant take-up for JEREMIE product
Various earmarked national/ EU funded
schemes
Use of capital markets
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Rapidly changing environmental factors make it
increasingly difficult for hotels to obtain the
necessary bank financing, and hence they may
need to look elsewhere for additional (cheaper)
financing. Some establishments have had to
postpone their investment decisions, leading to a
deterioration of the Maltese tourism experience.
The c. 20% take up in the MicroCredit scheme by
hotels and restaurants is a clear indication of the
continuous financing needs of this sector. There is
therefore scope for further bank assistance,
possibly through a replication of the JEREMIE
MicroCredit loan guarantee fund. Moreover, a
hybrid approach taking into consideration both
grants and loans would also be applicable.
There is doubtful scope for additional equity
financing – many large Maltese entrepreneurs
have moved away from SME hotels and restaurant
investments, leaving banks as the main source of
financing. This is also reflected in the survey
results, where this sector expressed the lowest
willingness to seek additional equity injections.
Significant interest in loan guarantee
financial instrument
Scope for extending loan guarantee
product, or combining it with other forms
(loan + loan guarantee, risk-sharing, grant +
loan guarantee)
Minimal scope for VC funds and other third
party private equity
100
MaltaToday (2010), Three-star hotels’ income squeezed by recession, competition; Times of Malta (2010), Tourism on the road to recovery but sector still very fragile; MaltaToday (2011),
Tourism in 2012 will require additional funding; Times of Malta (2012), Restaurants report higher sales but slower growth
101
For example, the MTA Palazzini scheme is a pilot project aimed at encouraging the conservation and rehabilitation of historic properties to incentivise their adaptive reuse as luxury heritage
accommodation (http://www.mta.com.mt/template.aspx?id=276)