Syndicated lending to the Gulf is now severely disrupted and several large loans have been postponed, reworked, repaid or drawn down to cope with extraordinary market conditions, senior banking sources said.

Gulf-based banks have battled increased funding costs for most of the year and have relied heavily on European and Asian banks to buy loans for regional borrowers.

But bank funding costs have spiralled after Lehman's collapse and liquidity is reatreating back to domestic markets and is being further eroded by enforced bank consolidation.

"There is no money in the Middle East loan market - there is no liquidity," a loan syndicator in the Gulf said.

Several loans have already been affected by deteriorating market conditions and international banks are now unwilling to underwrite deals in the six oil-producing Gulf Cooperation Council (GCC) states, bankers said.

Bankers expect volume to plummet in the fourth quarter. The Middle East has borrowed $91 billion by the end of the third quarter, which is 16.5 per cent down on last year's $109 billion figure for the same period, according to Reuters Loan Pricing Corp. data.

State-owned Qatar Investment Authority has ditched plans to secure a refinancing loan and instead opted to repay back its debut $3 billion loan from October 2007.

Kuwait's Global Investment House increased the margin on its $410 million, three-year term loan by 35 basis points (bps) to 210 bps over LIBOR, a banker close to the deal said after the deal was launched in the immediate aftermath of Lehman's collapse.

Dubai government-owned entities, known collectively as Dubai, have had a busy year in the loan market, but some of the deals have been hit by falling liquidity as well as an oversupply of paper.

Borse Dubai is finding it very difficult to find bank support to refinance the company's $3.78 billion loan that matures in February, as reported by Reuters Loan Pricing Corp Last week.-Reuters