Emirates NBD is to acquire Dubai Bank, the Islamic lender which was taken over by the emirate's government five months ago.
The acquisition comes following an order by Sheikh Mohammed Bin Rashid, UAE Vice President and Ruler of Dubai.
The move was "in line with Dubai Government efforts to enhance the banking sector in the emirate," the Dubai Government Media Office said in a statement.
The takeover also "reflects the government's flexibility in dealing with the economic variables," the statement added.
Stocks in Emirates NBD, the UAE's biggest bank by total assets, fell 0.7 per cent to Dh3.77 after the announcement was made.
Emirates NBD had been anticipated to take control of Dubai Bank for some time, said Jaap Meijer, a financial analyst at AlembicHC.
"They're probably going to acquire it for nothing," he said, adding that the takeover would result in a "negative impact" to its capital base.
Dubai's government took control of Dubai Bank in May, injecting an unspecified amount of fresh capital to steady its finances.
Prior to its rescue, Dubai Bank was 70 per cent owned by an arm of Dubai Holding, a conglomerate owned by Dubai's ruler which is currently attempting to restructure its debts.
The remainder of Dubai Bank's shares were owned by Emaar Properties, the Dubai-based developer. The builder of the Burj Khalifa saw net profits for the second quarter fall 68.8 per cent as it wrote off its Dh172.3m stake in Dubai Bank.
