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By Jonathan Saul and Matt Scuffham
LONDON, Dec 18 (Reuters) - Lloyds Banking Group hassold billions of dollars in shipping loans in recent months asthe British bank accelerates its exit from the sector andreduces capital exposure, ship finance sources said onWednesday.
Lloyds, its British rival Royal Bank of Scotland andGermany's Commerzbank and HSH are amongEuropean banks seeking to sell shipping loans to investorsincluding private equity funds to strengthen their balancesheets.
The sources said Lloyds' shipping portfolio was now worth inthe region of $1.5 billion to $3 billion.
Lloyds has not given regular updates on its shipping marketexposure but it stood at 7 billion pounds ($11.37 billion) atthe end of 2012.
"Lloyds has been actively deleveraging in this area as withother non-core assets," one banking source said.
The sources said Lloyds had offloaded parts of its shippingportfolio to private equity funds and more discreetly to otherbanks.
"They are doing a good job writing it down and they arepackaging and selling it off to strategic buyers," one shipfinance source said.
Lloyds is 33 percent owned by the UK government, which wantsit to focus on lending to British households and businesses. Itneeds to plug an 8.6-billon-pound shortfall identified byBritain's financial regulator in June before it can persuade theregulator to allow it to pay dividends again.
RBS said on Wednesday it was placing its entire shippingbusiness inside a 'capital resolution group', which would houseits internal 'bad bank', but does not plan to exit the shippingindustry entirely.
Separately, struggling German public-sector lender HSHNordbank said on Wednesday it had secured $700 million infunding from Citigroup, backed with 30 ship loans fromHSH's portfolio, as part of efforts to diversify itsrefinancing.
Shipping companies say the sector will continue to facetighter lending conditions given the scale-back by many banks.
"Some of the smaller, more thinly capitalised ship owners... will still struggle," said Nick Fletcher of CommonwealthBank of Australia, one of the few banks boostinglending to the sector.
Fotini Karamanli, chief executive of dry bulk ship ownerHellenic Carriers, added: "The reality is shipfinancing is more expensive today and the terms under which itis provided are stricter."
