Lloyds, which is 40 per cent owned by the British government, said on Wednesday it had sold the loans for 388 million pounds in cash and the proceeds would be used to repay debt. The portfolio generated a loss of £183m last year.
Lloyds said the transaction, which is expected to complete in the third quarter, was in line with its strategy of reducing its non-core assets and removing assets which carry the greatest risk from its balance sheet.
"This transaction further de-risks the Australian business and results in a cumulative 92 per cent reduction of our real estate non-performing loan portfolio. We continue in parallel to focus on growing the profitable core of our business," said Dave Smith, chief executive of Lloyds International Pty.
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.
Lloyds offloaded A$1.7bn in distressed property loans to Morgan Stanley and Goldman Sachs in November last year.
It said it still had A$4bn classified as non-core loans spread across property and distressed corporate and would look to exit those loans as well.