Thomas Cook’s demise is credit negative for Bulgarian, Greek and Cypriot banks because it weakens the cash flow of businesses in those countries' significant tourism sectors, potentially leading to higher credit impairments, said Moody’s.
“The compulsory liquidation of Thomas Cook and the resultant decline in tourism revenue and investment in these three countries will weaken the credit standing of businesses that worked with the now failed company and relied on payments from it, such as hotels and related businesses, including small enterprises that provide auxiliary services,” said the Moody’s analysis.
Each hotel has a separate contract with Thomas Cook, but according to reports, the company would owe significant amounts to hotels for stays in July and August because in certain cases it made payments 60-90 days after the trips.
Bank lending to non-financial corporates in Bulgaria's accommodation and food services sectors made up 6.5% of their total loans to the corporate sector as of June.
The equivalent exposure for Greek banks was 10.8%, while, for Cypriot banks' this exposure totalled around 13.9% of their total loans to the corporate sector at the end of March 2019.
“The effect on banks’ loan books will be more broad-based given the tourism sector's linkages to other sectors, such as transport and trade, and the overall importance of tourism to the countries' economies and employment,” said Moody’s.
It said the effect on the tourism sector, and therefore banks, would “soften” if the authorities take steps to mitigate the immediate effects of the company's collapse, or alternative operators are found for next year’s peak tourism season, which runs from June to September in Bulgaria.
Bulgarian authorities have announced they are considering steps to support hotels by introducing a special fund for hoteliers.
In Greece, the regional governor of Crete requested help from the minister of tourism to reduce the tourism industry's losses.
In response, Greece's Ministry of Finance announced the government will exempt hotel owners who incurred losses from Thomas Cook's collapse from paying the hotel accommodation tax.
The authorities in Cyprus are also working on a support package for the hotel industry.
“We do not expect Thomas Cook's compulsory liquidation to significantly affect Turkish banks. Although Thomas Cook had significant operations in Turkey, they were relatively small in the context of the country’s large and diversified tourism industry.”
Thomas Cook brought around 0.7 million tourists to Turkey annually, which is a small fraction of the more than 39 million overseas visitors in 2018, and we expect the flow of tourists from Thomas Cook to be replaced by other operators.
According to a statement from Bulgaria’s Minister of Tourism Nikolina Angelkova, the UK company sent 350,000-450,000 tourists to the country annually, or 6%-8% of Bulgaria's total tourist arrivals.
Based on the latest available data, Bulgaria had 12.4 million overseas visitors between August 2018 and July 2019, 5.7 million of whom visited for a holiday or recreational activities.
Thomas Cook had a particularly strong presence in resorts on the Black Sea and, according to news reports, its airline made up more than half of the flights to Varna and Burgas on the Black Sea coast.
The Bulgarian tourism sector, together with related industries, generated 12% of the country’s GDP in 2018.
Thomas Cook also employed around 1,000 people in Greece, according to news reports, and accounted for around 3 million tourist arrivals per year, or about 9% of the country's total arrivals of 44 million in 2018, as per Bank of Greece data.
Thomas Cook had a particularly strong presence in Crete and Cos, where around 70% and 25% of the two islands' hotels, respectively, had contracts with the company.
The effect of Thomas Cook's liquidation on Cyprus’ tourism sector is also likely to be substantial. Around 250,000 tourists annually travel to Cyprus with Thomas Cook and generate revenue of €187 million.
In 2018, tourists traveling to Cyprus with Thomas Cook accounted for around 6%-7% of total arrivals.
The effect on Cyprus may be less pronounced than on Bulgaria and Greece, however, because companies affiliated with Thomas Cook that bring a large number of tourists to the island currently appear not to be affected by the company's collapse.