The severity of competition for term deposits put a brake on the return to profit of Bank of Queensland over the half year to August 2012. The bank got no lift in profit from repricing home loans and other loans during the half.Between March and June, BOQ increased the spread between its variable home loan rate and the Reserve Bank of Australia cash rate by 25 basis points. Lending losses forced management to take a more realistic approach, reversing efforts to seek a public relations benefit by cutting consumer rates in line with RBA rate reductions in October and November 2011.The pricing decisions in the second half merely offset the compression on spreads on the deposit side of the book, with net interest margin falling four basis points to 1.63 per cent."Asset price increases were insufficient to recapture the increase in the costs of deposits'," Anthony Rose, the bank's new chief financial officer, told an investor briefing yesterday.Rose said the pressure on margins mainly arose from retail liabilities, with there being little benefit from the relative cost of funds of wholesale funding.Over the year, the average rate paid on retail deposits by BOQ fell 28 basis points to 4.90 per cent. The average rate paid on business and wholesale deposits fell 58 bps to 5.90 per centIn line with a trading update released two weeks ago, BOQ yesterday reported a net profit of A$73.5 million for the second half ending August, and a full year loss of $17.1 million. The main driver of the full year loss was the doubling in the charge for bad debts over the year, to A$401 million, most of which the bank recognised in the first half.BOQ's management framed some of its profit presentation around a "normalised profit" number of $103 million for the second half (compared with a loss of $72 million in the first half).On a full-year basis, the normalisation turns the $17 million loss into a $30 million profit by ignoring "legacy issues", "restructuring costs" and even "asset impairments".The drag on BOQ's profit from problem assets comes overwhelmingly from commercial and high-value residential loans.Earnings from the bank's equipment finance arm eased only marginally, to $47.2 million. The profit from the life insurance and credit insurance business increased 12 per cent to $20.1 million. The level of new impaired assets fell to $203 million in the second half, from $257 million in the first half.Bank management gave little away regarding its thinking on whether, or how, it might redeem $196 million in hybrid capital securities known as Perpetual Equity Preference Shares, with a decision needed within the next few weeks.