* UAE banks held on to Qatar exposure after dispute erupted
* But hopes for resolution have faded
* So banks offering loans more aggressively
* International institutions are potential buyers
* Most loans are to banks, some to corporates or projects
By Davide Barbuscia
DUBAI, Oct 3 (Reuters) - A number of banks in the United Arab Emirates are in talks with international counterparts to sell down their Qatar exposure as the Gulf's diplomatic crisis drags on without resolution.
In recent weeks, banking sources say, it has become clear to many UAE bankers that Qatar's isolation could potentially last for years.
Saudi Arabia, the United Arab Emirates, Bahrain and Egypt cut diplomatic and transport ties with Doha on June 5, alleging Qatar funded terrorism, something it vehemently denies.
At the time, UAE banks pulled back from new business with Qatari institutions but largely hung on to existing syndicated loans which they had extended to Qatari banks.
Some UAE banks did discuss the possibility of selling off their exposure, but very little of any actual business was done and prospective sellers were reluctant to lower the prices of the loans significantly, the sources said.
Now, however, the idea has firmed as mediation efforts have made no apparent progress. UAE Minister of State for Foreign Affairs Anwar Gargash said this week that Qatar knew what it needed to do to end the dispute, so the issue was no longer a priority for the four states.
UAE banks holding Qatari loans have become “more aggressive over the past couple of weeks” in offering the loans for sale in the secondary market, said one banker at a European bank specialising in financial institutions.
Prospective sellers, including First Abu Dhabi Bank , have been in talks with a select group of potential buyers over the past two weeks to sound out their appetite for Qatari bank loans, the sources said. A spokeswoman for First Abu Dhabi declined to comment.
Qatari banks have traditionally relied heavily on external financing and raised over $10 billion through syndicated loans since early 2014, Thomson Reuters data shows. A large proportion of that total was lent by banks in the UAE, the region's financial centre.
First Abu Dhabi, the largest bank in the UAE, participated in several syndicated loans to Qatari banks over the past few years, including loans to Ahli Bank, Commercial Bank of Qatar (CBQ) and Qatar National Bank (QNB) .
Loans to QNB, the country's largest lender, and CBQ are among assets now being offered for sale, the sources said.
A spokesman for QNB said: “It’s a normal practice in the industry that lenders to banks through syndicated loans sell part or all of their exposure in the secondary market.
"Nevertheless, as far as QNB is concerned, we can confirm that we have not received recently any unusual requests for our approval to sell any exposure to QNB in the secondary market, which is required. Accordingly, we can confirm that there is no systematic selling by banks who participated in QNB syndicated loans.”
Spokespeople for CBQ did not respond to emails and telephone calls seeking comment.
While most Qatari loans on offer are to Qatari banks, some corporate and project finance loans are also being offered, the banker at the European institution added.
Holders of Qatari debt may find it hard to sell without accepting significant discounts. Credit rating agencies have downgraded Qatar since the dispute erupted and all three major agencies have negative outlooks on the country.
Qatar's ratings are still high - Fitch has it at AA-minus - but potential buyers may be especially wary of loans with over a year to run, given the risk of the dispute worsening. (Reporting by Davide Barbuscia Editing by Andrew Torchia/Jeremy Gaunt)