Lloyds Banking Group's Australian unit has sold A$1.7 billion ($1.65 billion) in distressed property loans to Morgan Stanley and Goldman Sachs to free up capital to focus on corporate lending and asset finance.

A spokeswoman for Lloyds in Australia said the sale was part of the group's plan to wind down non-core assets and involved the exit of a New Zealand portfolio and an Australian portfolio by BOS International, one of its three Australian units.

The group still has A$4 billion classified as non-core loans spread across property and distressed corporates. Lloyds would look to exit those loans as well, she said.

Morgan Stanley Real Estate Fund bought a set of loans exposed to Gold Coast properties worth A$700 million, while Goldman Sachs purchased a group of New Zealand loans valued at around A$1 billion.

The sales come as European lenders are retreating from the Australian loan market to free up funds as the euro zone debt crisis makes funding scarce and sends costs soaring, three sources said this week.-Reuters