Oct. 15 (Bloomberg) -- Bank of Queensland Ltd., the Australian regional lender formed in 1874, said second-half profit rose 23 percent after it cut costs and sold more loans.

Net income in the six months ended Aug. 31 climbed to A$94.8 million ($86.7 million) from A$77 million in the year- earlier period, the Brisbane-based bank reported today.

Managing Director David Liddy has trimmed expenses, raised capital, and said today the bank plans to expand as the economy recovers. Australia’s smaller lenders are losing market share to the top four banks, which increased their combined portion of new owner-occupier mortgages to 81 percent in July from 60 percent as of mid-2007, the Reserve Bank of Australia said.

“We expect bad debts to peak in the coming financial year,” Liddy said in a statement. “Overall our asset quality is sound. We will actively pursue scale.”

Bank of Queensland today gained 2.2 percent to A$12.60 at the Sydney close, taking this year’s gain to 28 percent. That trails the 31 percent advance on the benchmark S&P/ASX 200 index, and lags behind gains by Australia’s four biggest banks -- Australia & New Zealand Banking Group Ltd., Commonwealth Bank of Australia, National Australia Bank Ltd. and Westpac Banking Corp.

Bank of Queensland last month completed a A$340 million share sale to bolster reserves.

“Our capital buffer positions us well to take advantage of emerging growth opportunities,” Liddy said in the statement. The bank plans to expand in equipment finance and debtor finance, the company said in a presentation to investors.

Full-year net income at Bank of Queensland climbed to A$141.1 million from A$138.7 million, the bank said. The company was expected to report full-year profit of A$149.8 million, according to the average of six analysts’ estimates compiled by Bloomberg.

To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net

Last Updated: October 15, 2009 02:04 EDT