Bank of Queensland yesterday provided a warning that a further decline in credit quality may be permeating the banking industry in Australia, with the bank disclosing a steep rise in impaired loans in the first half of its financial year.One consequence is that BOQ has reported a surprise loss of A$91 million in the six months to February 2012.A second surprise is the bank's decision to sell $450 million in new shares, which will increase its capital base by close to a fifth.Some aspects of BOQ's weakening credit quality may be self-inflicted, with the bank's fresh appraisal of the security value of many commercial property and other business loans catching up with market prices.The bank said it had lifted its estimate of the level of impaired by assets by 30 per cent, to $579 million, at the end of February. One response was to lift the collective provision by $162 million, on top of a rise in the specific provision (over the August 2011 half) of $100 million. This takes the bank's ratio of provisions to risk-weighted assets to 2.72 per cent, up from 1.56 per cent six months earlier.Most of the decline in credit quality comes from in commercial property, though a quarter of the extra impairments relate to consumer loans (in spite of relatively stable arrears on home loans). Arrears on line of credit loans have also doubled though these remain less than one per cent.Each half-year since the onset of the financial crisis, in 2008, BOQ's management - few of whom now work for the bank - would provide assurances about the thoroughness of their work in testing asset quality.But under a new managing director, Stuart Grimshaw, who joined the bank in November 2011, the bank has taken a fresh look at its assets, with the assistance of external advisers.A degree of cynicism may be appropriate, however, since the trading update and capital raising announced yesterday are part of a wider series of announcements that represent a "clearing of the decks" by Grimshaw, who joined the bank from fund manager Caledonia Investments. (Grimshaw worked for Commonwealth Bank for most of the 2000s and began his career at National Australia Bank).Other key themes stated yesterday included an overview of strategic issues facing the bank (reported in more detail in the following articles) and the hiring of a new chief operating officer and a new chief risk officer.Jon Sutton is the new chief operating officer. Sutton, who starts next month, was managing director of CBA-owned Bankwest until recently.The new CRO is Peter Deans, who has already begun work at the bank. He joined from Commonwealth Bank, where he managed risk functions for the institutional business.