Global lending for the shipping sector will fall to between $410 billion and $420 billion by the end of 2009 as cancellations and cuts in lending kick in, the Managing Director of shipping firm Petrofin SA told a dry bulk shipping market conference in London.

This is down from $450 billion of shipping finance committed at the end of 2008, Ted Petropoulos said.

"The year 2009 has seen a severe drop in fresh lending and a significant reduction in loan commitments," he added.

Loan books are also shrinking naturally due to loan repayments, vessels sales, and vessel pre-payments, Petropoulos said.

This leaves the future of shipping finance less certain, he noted.

The Royal Bank of Scotland PLC (RBSB) and HSH Nordbank account for 19.55% of loans to the shipping sector, and have already stated their intention to downscale this in the future.

Around 13 other key banks have adopted a neutral or unclear stance towards shipping finance, he added.

This means there will be problem for capacity to be financed going forward since around half the industry's key banks have now taken a noncommittal stance towards shipping, he said.

New money lending for the shipping sector has already fallen to $15 billion in the first nine months of the year from $67 billion in the same period a year ago.

"It's going to be very difficult for the new banks that are coming in to match this erosion of commitment, and I expect therefore a continued credit squeeze for 2010, returning to more of a balance in 2011," he said.

"The recovery in the dry bulk market has supported this conciliatory approach (by banks), but the fall in tanker vessel values and earnings, and the collapse of containers, is a growing concern," he added.

New lenders, especially in the Far East, more owner capital, and private equity financing will likely now come forward to plug the financing shortfall, Petropoulos said.

"Banks need to deleverage and need time to clean up their portfolios and consider shipping finance in a more positive light... New lending capacity will be relatively scarce in the next two to three years," he added.

-By Andrea Hotter, Dow Jones Newswires; +44 (0)20 7842 9413; andrea.hotter@dowjones.com