Nov. 11 (Bloomberg) -- HSBC Holdings Plc and Lloyds TSB Group Plc, two of the largest U.K. banks operating in the United Arab Emirates, are reducing lending there as the credit crunch begins to infect the Persian Gulf.

Lloyds TSB, the London-based bank that entered the U.A.E. market in 1977, stopped offering mortgage loans for apartments in Dubai and reduced the amount it will lend to 50 percent of the price of a villa from 80 percent, it said today in a statement. HSBC, Europe's largest bank, will require customers in the emirate to earn at least 20,000 dirhams ($5,445) a month to get a personal loan, HSBC spokeswoman Andrea Jaishankar said in an interview today.

``Our new credit eligibility criteria will ensure that customers receive loans that they can afford to repay at a time of considerable uncertainty around the world,'' Jaishankar said.

The lending restrictions come after house prices in Dubai quadrupled in the last five years, fueling concerns that a sharp fall is imminent. The government said this week it has set up a committee to restore confidence in the real estate market. Tamweel PJSC and Amlak PJSC, the largest home lenders in the U.A.E., made few mortgages in the third quarter and even fewer in the fourth quarter, said analysts at Dubai-based EFG-Hermes Holding SAE.

``It's clearer that property prices are in retreat,'' said Raj Madha, banking analyst at EFG-Hermes, the largest Arab investment bank by market value, in a telephone interview today. ``Once we have reached that bottom, we will see confidence return and transactions come back to the market.''

Lending in the U.A.E., which rose as much as 50 percent annually over the last two to three years, will slow as the global credit crisis keeps capital markets in ``turmoil and shut,'' Eirvin Knox, chief executive officer of Abu Dhabi Commercial Bank PJSC, said yesterday.

Liquidity Crisis

Central banks across the Gulf have taken action to avert a liquidity crisis. The United Arab Emirates and Kuwait have guaranteed deposits while the Saudi Arabian Monetary Agency last week slashed its benchmark repo rate by 1 percentage point to 4 percent, added cash to banks on Oct. 20 and Oct. 21 and reduced the cash reserve requirement.

Lloyds TSB, which agreed to buy U.K. rival HBOS Plc in a deal valued at 6.3 billion pounds ($9.7 billion) as of Oct. 31, said customer defaults, credit losses and worsening stock markets led to a``substantial reduction'' in pretax profit in the first nine months of the year.

Lloyds TSB, which operates in no Middle Eastern markets other than the U.A.E., offers capital markets services, project finance, and commercial and consumer lending. It restructured the unit in 2007 to merge its consumer and business banking unit and relocated its CEO for the Middle East to London.

`Financial Stability'

``The recent amendments to our mortgage offering demonstrate this approach by protecting the financial stability of future mortgage customers who wish to enter the market during what is an uncertain time,'' said Richard Musty, consumer banking director for Lloyds TSB Middle East.

Kuwait last week rushed through a law guaranteeing bank deposits after a run on Gulf Bank K.S.C., which had to be rescued by the central bank. Gulf Bank suffered losses after some clients refused to honor losses on currency derivative trades.

The Central Bank of Bahrain plans to limit exposure by local banks to the real estate sector as a precaution against a slowdown in the local property market, Gulf Daily News said, citing central bank Governor Rasheed al-Maraj.

Saudi Arabia will probably not add additional funds to the financial system after it placed almost $3 billion in deposits with Saudi banks last month, the deputy governor of the kingdom's central bank said on Nov. 3.

Job Cuts

Damac Holding, a closely held U.A.E. property developer, said today that it cut 200 jobs, or 2.5 percent of its workforce, as it prepares for a slowdown in the regional property market.

The U.A.E. began to deposit 25 billion dirhams with local lenders, the second portion of a bank support fund, state news agency WAM reported Nov. 6.

The U.A.E. banking industry ``is not really exposed to mortgages to any great extent, because Amlak and Tamweel have taken the bulk of the business,'' Madha said. ``Certainly Tamweel and probably also Amlak made very few mortgages during the third quarter and we would assume even less in the fourth quarter.''

To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net

Last Updated: November 11, 2008 08:06 EST