Bank of Queensland suffered a 13 per cent fall in earnings for the year to August 2011, due to a big increase in its bad debt charge. The profit improved in the second half, however.Net profit fell from $181.9 million to $158.7 million. Earnings per share fell from 77 cents to 63.1 cents and the return on equity fell from 9.6 per cent to eight per cent.Many key indicators were positive. Interest income increased by 20 per cent to $2.6 billion and non-interest income rose 22.5 per cent to $2.05 billion. Insurance income - a business now wholly-owned by the bank - also had a strong increase.The bank's net interest margin rise from 1.6 per cent to 1.63 per cent, and may improve further as its shaves its level of liquid assets. The bank did say, though, that it would continue to price retail deposits at a slight premium to the market to maintain above-system growth in deposits. The cost to income ratio fell from 45.8 per cent to 44.5 per cent (the ratio has come down from 62.6 per cent in 2007).However, the loan impairment doubled - up from $104 million in 2010 to $200 million. At 62 basis points of gross loans and advances, the bad debt charge is almost twice the average of the major banks this year.The bank doubled the size of its collections team to deal with increased level of problem loans.Bank of Queensland's acting chief executive, Ram Kangatharan, said the big increases in loan losses was a result of the Queensland floods last summer, a general weakening of the economy and three large commercial exposures.He said loan losses came down in the second half of the year. First half charges were $134 million, down to $66 million in the second half.The bank had strong deposit inflow. Retail deposits increased from 48 per cent of funding in 2010 to 52 per cent in the year to August.Management said at the investor briefing that this trend went the opposite way to that expected by the ratings agency Standard & Poor's, which lowered the bank's credit rating earlier this year.Kangatharan said BOQ set itself a target return on equity in 2014 of 14 per cent.He said the bank, and banks in general, had lowered their views on sustainable ROEs in light of the financial crisis.Kangatharan said that three years major banks considered a reasonable return on equity was in the range of 18 to 20 per cent but had lowered that to around 15 to 17 per cent.