Lloyds Banking Group has started the sale of A$2.1 billion (1.4 billion pounds) of non-performing loans on distressed property in Australia as the group seeks to wind down non-core assets, a source close to the deal said on Thursday.

The move is the second round of sales after the bank offloaded A$1.7 billion in distressed property loans to Morgan Stanley and Goldman Sachs in November last year.

A spokeswoman for Lloyds said only that the bank was looking at options for its non-core assets.

We are looking at a number of actions which will help us deleverage our non-core assets, she said.

Lloyds in November said that the group still had A$4 billion classified as non-core loans spread across property and distressed corporates and it would look to exit those loans as well.

European lenders have been retreating from the Australian loan market to free up funds as they deal with the impact of the euro zone debt crisis.

(Reporting by Eriko Amaha; Editing by Richard Pullin)