LONDON (Bloomberg) — Bradford & Bingley Plc, the UK's biggest lender to landlords, sold £4.2 billion ($8.7 billion) of home and commercial property loans to improve cash flow as credit costs increase.

The company sold its Housing Association portfolio at book value for £2.2 billion to Dexia SA, Belgium's third-largest financial-services company. It also sold a portfolio of commercial loans at a discount to book value for £2 billion to GE Real Estate, Bradford & Bingley said in separate statements yesterday.

"The Housing Association book is low margin but it's also low risk and it seems an odd time to be selling a low risk book," said Bruce Packard, a London-based analyst at Pali International Ltd.

Banking stocks have declined this quarter on concern tightened credit markets may increase funding costs and erode earnings. The cost of borrowing pounds for three months rose to a two-month high yesterday, amid concern that losses linked to US subprime mortgages will grow. Bradford & Bingley, like UK peer Alliance & Leicester Plc, depends on capital markets for more than 50 percent of its funding.

Bradford & Bingley shares added 3.1 percent to 265 pence as of 4.39 p.m. in London, valuing the company at £1.64 billion. The stock has lost 14 percent this month.

"Selling these assets enables the group to focus its activities on profitable growth in the core business of residential mortgage lending and retail savings," Bradford & Bingley said in both statements.

The cash proceeds of the sales will "increase the group's liquidity and provide funding for attractive, higher-margin opportunities," the company said. The bank reiterated earlier this month it continues to raise money on the capital markets and is "well funded".

The sale of the loans will produce a loss of between £15 million and £40 million, the company said. The bank's first-half and 2006 earnings will be restated to reflect the sales, the company said.

"The board concluded back in April that the sale of our housing association book was a natural step," chief executive officer Steven Crawshaw said, referring to the sale of home loans to Dexia.