Lloyds Banking Group is unlikely to sell its $10 billion (6 billion pound) portfolio of shipping loans to a single buyer and aims to parcel up loans for sale as European banks continue to retreat from the maritime sector, industry sources say.

Lloyds, 41 percent owned by the UK government, has held talks in the past year to sell its shipping finance book but not reached any deal. A single deal is now unlikely, but the bank is looking to sell blocks of the loans to single buyers, ship industry and banking sources told Reuters.

They are trying to parcel it off and sell it in bits, a senior ship industry source said.

Shipping companies, especially in the oil tanker and dry bulk sectors, hit by weak earnings and an oversupply of vessels ordered in the good times, are facing a growing funding squeeze as banks pull back from heavy industry sectors as the euro zone debt crisis deepens.

Lloyds' loan book has been reduced by individual asset sales and the agreed repayment of loans by borrowers and that will continue, a source familiar with the matter said.

A spokesman for Lloyds, which is being advised by Goldman Sachs, said a strategic review by its new Chief Executive Antonio Horta-Osorio last June identified that shipping finance would no longer be a core activity... and we are continuing to reduce the size of our shipping exposure.

They want to get rid of it and appears there are banks interested, another ship industry source said. With Basel III coming now, these organisations have no choice but to get rid of these books.

Banks are particularly keen to shed dollar-denominated assets, such as shipping and trade finance loans.

Royal Bank of Scotland has a shipping loan book almost twice the size of Lloyds. About 35 percent of RBS's shipping loans, or some $6.9 billion, has been put in its non-core portfolio, which are up for sale or will be run down, a source familiar with the matter said.

CREDIT SQUEEZE

The remaining $12.8 billion of RBS's shipping finance has been kept in its core banking business, typically because the bank has a relationship with the borrower.

Shipping sources said they were aware that RBS was looking at shrinking their shipping loan book.

RBS, 83 percent owned by British taxpayers, has aggressively cut the size of its balance sheet and continues to do so.

In 2010 annual report it said 2.8 billion pounds of its shipping loans were subject to a heightened level of monitoring, though it said there had been no material impairments charges to date.

(Editing by Mike Nesbit)