(Adds details, background on government inquiry) Feb 18...

(Adds details, background on government inquiry)

Feb 18 (Reuters) - Bank of Queensland Ltd (BOQ) expects a challenging second half of the year as the Australian lender said on Monday it anticipated cash earnings in the current half to be lower than those of a year ago.

Adding to the challenging climate, the retail bank predicted a rise in regulatory costs stemming from a year-long misconduct inquiry into the financial sector that revealed widespread wrongdoing.

BOQ said its cash earnings in the first half were expected to be between A$165 million to A$170 million ($117.69 million-$121.26 million), lower than the A$182 million it reported a year ago.

The Brisbane-based lender said the fall in first-half income was due to an expected A$8 million to A$10 million decline in non-interest income from a year ago.

Net interest income is likely to be broadly in line, however, with the A$475 million posted in the first half of last year, the lender said in a statement.

It added that its common equity tier-one ratio would be above the 9.1 percent it reported in its November quarter Pillar 3 disclosure. At the end of last month, BOQ forecast its ratio between a range of 8.25 percent to 9.5 percent.

BOQ is scheduled to report half-year earnings on April 11. ($1 = 1.4019 Australian dollars)