Abu Dhabi Commercial Bank (ADCB) readied its first payout to shareholders in three years as its problems with bad debts eased last year.
The move came as signs emerge that the banking sector is starting to free itself from the debt crisis of the past few years.
The capital's second-biggest lender reported profits for the full year of Dh3 billion (US$816.7 million), up from Dh381m in 2010 and more than Dh1bn above analysts' estimates.
The bank's profits for the last quarter rose 39 per cent to Dh514m. ADCB's board approved a Dh816.7m cash dividend of 20 per cent, its first dividend payment since 2008.
The company's bottom line was helped by a decrease in writeoffs on investment properties and falling impairments on bad debts, which fell 27.1 per cent to Dh2.08bn.
Provisions for bad debts have hobbled many of the UAE's lenders since Dubai's debt crisis broke, constraining banks' ability to lend. However, there was a recovery taking root last year among some banks.
ADCB had shrunk its need for provisions during the year by more than expected, said Shabbir Mailk, a financial analyst at EFG-Hermes.
"I was a bit concerned about their potential exposure to Dubai Holding, but from the looks of this they don't have that," he said.
"I don't think there's anything major in terms of asset quality issues affecting them right now."
The bank's shares climbed 5.6 per cent after the release of earnings to Dh2.97, the highest level since October.
Non-performing loans fell to 4.6 per cent of the bank's total lending book, from 11.1 per cent last year, after a Dh6.7bn loan to an unnamed party was renegotiated.
Mr Malik said that loan was most likely to Dubai World, the conglomerate that was restructured in 2010.
Despite ADCB's decrease in bad loans, impairment charges for defaulting debts are expected to remain high in this year for UAE lenders, according to a report from Fitch Ratings released last month.
"The significant increase in renegotiated private sector loans may hide the true extent of the banks' asset quality problems, as some of these loans may re-emerge as non-performing loans," the ratings agency said.
Falling spreads on the money the bank earned from lending, alongside a fourfold increase in profits from its Islamic subsidiary, pushed operating income 21.3 per cent higher to Dh6.06bn.
During the year, the bank's earnings received a Dh1.3bn boost from the sale of a minority stake in RHB Capital Berhad, a Malaysian lender, to Abu Dhabi's Aabar Investments.
The stake, bought for 5.9 billion Malaysian ringgits (US$1.9 billion), was funded by an interest-free loan from Aabar's parent, International Petroleum Investment Company, according to a recent bond prospectus.
ADCB in turn financed that purchase through a Dh7.7bn loan to Ipic, it later emerged, initially swelling the size of the bank's loan book during the third quarter of last year.
However, its lending has barely budged since then, growing only 0.4 per cent to Dh124.7bn.