Hotel Boom Faces a Test of Resilience

The good news is, tourists arrival in Nepal in October, 2025 rebounded strongly after the September 8-9 Gen Z protests. Giving much needed relief to Nepal's hotel industry, the country saw arrival of 128,000 tourists in October. While the numbers are encouraging, there are still doubts how strong would be the recovery. Vandalism and security concerns have triggered cancellations and dented investor confidence. Around 30 hotels, including major names like Hilton, Hyatt, Barahi, and Sarowar, were directly affected during the September 8–9 protests, with industry-wide losses nearing Rs 25 billion and 20,000 workers impacted.

Across the country, Nepal’s hotel industry—responsible for over Rs 326 billion in annual output—is navigating a complex landscape of political unrest, rising costs, and tighter bank lending. Can the hospitality sector keep expanding, or is the era of rapid growth drawing to a close?

Economic Footprint and Sectoral Strain

The impact of the Gen Z movement on the hospitality sector is already visible. The country's leading credit rating agencies—IcraNepal and Informerics—have placed around a dozen hospitality companies under negative watch.

According to the National Hotel and Restaurants Survey 2025 by the National Statistics Office (NSO), the country’s hospitality sector contributes a staggering Rs 326 billion annually to the economy. The report—the first detailed assessment in two decades—mapped 142,223 active establishments across the country, ranging from luxury hotels to roadside eateries.

Together, these businesses employ nearly 387,747 people, including 43% women, and offer more than 116,000 rooms across the country. Bagmati Province accounts for nearly half of the sector’s output, though growth is spreading beyond the capital to Lumbini, Gandaki, and Koshi.

At first glance, these numbers suggest a thriving industry. But beneath the surface, cracks are showing. Average profit margins, which was once around a comfortable 20%, has narrowed in key urban areas, especially Kathmandu, where operating costs have surged while occupancy rates remain fragile. The aftershocks of the pandemic, global inflation and rising borrowing costs had already begun reshaping investor sentiment. The September 8-9 protests further compounded these woes.

Occupancy and Liquidity Challenges

The Nepal Rastra Bank’s (NRB) October 2025 report shows that credit flow from banks and financial institutions to the service industry, which includes hotels, declined by 0.3% over the first two months of the current fiscal year, even as loans to construction and manufacturing grew modestly. Lending to the tourism sector is seeing a slowdown after two years of recovery. Bankers say the rise in non-performing loans (NPLs) in the hospitality sector is forcing them to be selective.

The sector remains heavily dependent on formal financing. The NSO estimates that banks fund around 40% of hotel investments, with cooperatives and microfinance institutions covering the rest. The total fixed assets in the hospitality sector stand at Rs 543 billion—a clear indicator of how much institutional capital is tied up in hotels and resorts.

Among lenders, until mid-March, Nepal Investment Mega Bank led with Rs 22.98 billion in tourism financing, followed closely by Prabhu Bank (Rs 21.57 billion) and Global IME Bank (Rs 19.11 billion). Other major contributors include Prime Commercial Bank, Kumari Bank and Rastriya Banijya Bank, each increasing their lending last year despite the uncertain climate.

Still, the trend line is flattening. “Banks have learned from experience,” says a senior hospitality consultant. “Too many projects in the past were approved without professional feasibility studies. Now, every loan requires validation from industry experts. Lenders want branded management agreements and credible business plans before committing capital.”

Bankers closely observing the sector noted that the Gen Z movement and subsequent protests have further disrupted Nepal’s tourism recovery. “Projects that were just starting to move forward in the hotel and tourism space have again run into trouble,” Rajesh Sharma, Deputy General Manager of NIMB, explained. He said that liquidity remains a key challenge. While banks have not completely stopped lending, the ground reality is that cash flow has tightened significantly, making it difficult for investors and hoteliers to manage operations smoothly.

Even during the peak season, many hotels are struggling to maintain occupancy and cover operating expenses. “This was the time when hotels were supposed to perform at their best, but occupancy rates haven’t reached expected levels,” another banker said. The banker added that recent political incidents and cancellations have dampened morale across the sector.

According to Sharma, a full rebound seems unlikely in the near term. “We don’t see the sector recovering properly before next year,” he said, adding that tourism loans have become relatively harder to recover than other forms of lending.

Unlike other sectors where loans may be misused for unrelated purposes, hotel financing is purpose-driven, but even then, repayment pressure is mounting. The main issue, according to the bankers, is not misuse of funds but rather hotels failing to generate enough cash to sustain operations.

With average occupancy hovering around 40-50%, most hotels cannot meet annual operating costs, even during the so-called peak season. Bankers warned that without a significant increase in tourist footfall, the sector could face deeper stress. Small and medium-sized establishments are the hardest hit. “Hotels with 10–20 rooms are closing down—they can’t sustain themselves anymore,” Sharma said, explaining that many of these fall under SME (small and medium enterprise) loans, where non-performing loan (NPL) ratios have surged.

Larger hotels, bankers admit, are “somehow managing”, often through restructuring and internal adjustments. However, the sentiment remains subdued, with little cause of optimism for this year.

“The Gen Z movement, coupled with weak security perceptions in tourist zones, has further eroded confidence. The protests and their ripple effects have added to the negative sentiment—it will take time before conditions improve,” Sharma observed. “Maybe next year, if the situation stabilizes, we can be more optimistic.” While the central bank has provided refinancing facilities and other relief measures, bankers stress that the real push must come from the government. One banker cautioned that Nepal’s hotel market may already be nearing saturation. “Big hotels are still coming up, but with so many launching simultaneously, supply could soon outpace demand,” he said. “At this pace, the sector is approaching saturation.”

Without an increase in tourist arrivals and a boost to overall sentiment, empty hotels will not help any one. The recent spate of vandalism, particularly the attacks on globally recognized brands like Hilton and Hyatt, has rattled investor sentiment far beyond the walls of affected properties.

“Even hotels that did not suffer damages are suffering,” says Tek Bahadur Mahat, CEO of the Hotel Association of Nepal (HAN). “The international media is still showing those visuals. Travelers see that and hesitate to come.”

According to HAN, hotel occupancy has dropped to 20–25 percent, with some properties reporting occupancy of as low as five percent. In a sector where peak season occupancy typically touches 80%, the fall is devastating. Mahat estimates that around 30 hotels were directly impacted by vandalism or arson, including major names such as Hilton, Hyatt, Barahi, and Sarowar. The association pegs industry-wide losses, direct and indirect, at nearly Rs 25 billion, with 20,000 workers affected.

While the government issued a circular in early October offering special facilities for hotels that were physically damaged, Mahat argues the support is too narrow. “The impact is much broader. Even those hotels that are operational have faced mass cancellations and revenue collapse. Relief shouldn’t be limited to burnt buildings; it should extend to all affected businesses,” he said.

The Ministry of Finance has announced a temporary deferment for loan repayments until mid-January, but hotel owners insist that is insufficient. With elections scheduled for March, they say recovery will take much longer.

“The government must understand that tourism is not just about arrivals at immigration counters,” Mahat said. “The real picture lies in occupancy, cancellations and cash flow. Those indicators are still grim.”

Cautious Optimism Amid Uncertainty

There is some optimism amid uncertainty though. In Butwal, the Hyatt Place is on schedule for a November opening, while Aarunya Nature Resort in Banepa is targeting a mid-January launch. Similarly, the Badshah Casino recently opened at the upgraded Hotel Barahi Kathmandu Hotel Kathmandu.

Hospitality industry expert Upaul Majumdar, who advises several international brands, believes most ongoing projects are still progressing as planned. “Most of these developments already have financing in place,” he explained. “Construction is on schedule because funds were secured before the crisis. The bigger concern is how new projects will move forward in the next cycle.”

Recently, MS Group, which operates Marriott Kathmandu Hotel and Fairfield by Marriott, announced that they were pushing back the opening of their new hotel, Moxy Kathmandu, citing the impact of the Gen Z movement on the hospitality industry. However, a tourism industry observer shared that delays are not always political. “Sometimes they are due to incomplete documentation, pending brand fees, or local approvals,” he claimed.

Talking about bank funding for hotels, Majumdar says the banking system itself has matured after years of trial and error. “Earlier, banks funded projects without proper due diligence—owners with little hotel experience, weak projections and no professional operators. Now, almost 95% of funded projects have a tie-up with an international or Indian brand. Banks have become smarter,” he added. “Domestic travelers are also shifting to branded properties because they trust the quality. That is a good sign for the industry.”

Despite the slowdown, investors with new hotel projects remain cautiously optimistic. Developers leading upcoming properties and expansion plans believe that the current disruptions, including the Gen Z–led protests, will gradually dissolve with time. Their confidence rests on the idea that Nepal’s tourism story is still strong, and with the right mix of branding, marketing and destination storytelling, the country can quickly rebuild its image as a safe and rewarding travel destination.

For now, most hoteliers say they are not seeking large-scale government bailouts. They are looking for just modest policy relief—primarily an extension of loan repayment periods to help them navigate the liquidity crunch until tourism rebounds.

For veteran tourism entrepreneur Bibhu Thakur of Himalayan Holidays Nepal, the challenges are intertwined. “If banks stop lending to the hotel industry, they also lose,” he said. “It is a give-and-take relationship. Everything is interconnected—tourism, finance, politics. Cut one wing, and the rest falters.”

Thakur believes the government should step in with subsidized lending to prevent a credit freeze. “Banks must survive, but hotels also need to flourish. Without credit, recovery will stall. This is a time for flexible, coordinated action,” he said. Thakur also pointed to Nepal’s infrastructural bottlenecks. “Our biggest problem isn’t always policy; it’s the entry points. We still rely on one fully functional international airport. What about Gautam Buddha and Pokhara airports? They should be game-changers, but diplomatic and operational delays are holding them back.” For Thakur, regional diplomacy is equally crucial. “We need balanced relations with both India and China. Even a tiny share of cross-border tourism from either country could sustain Nepal’s hotels for a year. But we need strategy, not sentiment,” he added.

Despite heavy cancellations, Thakur is cautiously optimistic of the tourism prospects for this season. “Nepal has seen worse. We have survived wars, earthquakes, blockades, and pandemics. This, too, shall pass,” he said.

Yet resilience alone cannot substitute for reform. Industry leaders warn that without consistent policy, reliable financing and strong infrastructure, the recovery could be shallow. “We can’t just survive on sentiment,” Mahat said. “Investors need certainty. Without it, the pipeline of new projects will dry up.”

Call for Coherent Recovery Strategy

As the dust settles, Nepal’s hospitality industry stands at a defining crossroads. On one side lies the promise of sustained growth, supported by international brands, domestic tourism, and untapped regional markets. On the other, a climate of uncertainty marked by political instability, weak coordination, and risk-averse banking. The NSO’s data underscores both the potential and peril: a Rs 543 billion asset base that fuels jobs, taxes, and investment, but also carries heavy financial exposure. If confidence wanes, the ripple effects could reach far beyond hotels, touching every sector tied to tourism.

The sector needs a coherent recovery strategy, combining government action, central bank support and private investment to safeguard jobs, restructure loans, and restore confidence. For now, hoteliers are waiting to see if the next chapter will bring stability or another wave of uncertainty to the industry. But as Thakur says with a weary smile, “Nepal always bounces back. It’s in our nature. The question is, how long can we keep doing it without learning?”

This article was first published in the November 2025 edition of New Business Age magazine.