Mashreqbank turned in a profit in the final three months of last year after taking losses in the same period for 2009.
The result added to a streak of largely positive earnings announcements by the country's battered lenders.
Mashreq, based in Dubai, said late on Tuesday it made Dh155.6 million (US$42.3m) in the final quarter of last year, reversing a Dh119m loss.
But its full-year profit of Dh803m was 20 per cent less than in 2009. All of the largest banks in the UAE that have announced results for last year have come out in the black. National Bank of Abu Dhabi, the country's second-biggest bank, reported a 22 per cent increase in profit compared with 2009. Abu Dhabi Commercial Bank swung to profit after taking losses in the previous year, and First Gulf Bank in Abu Dhabi saw annual profits rise by a more modest 3 per cent.
The UAE's largest bank, Emirates NBD, has yet to report.
Mashreq is the UAE's fourth-largest bank by assets. Abdul Aziz al Ghurair, its chief executive, said his bank's results reflected its commitment to the region "despite the difficulties it has endured". "While 2010 has been a year of steady recovery, we anticipate further improvement in 2011," Mr al Ghurair said.
Chief among the concerns for banks across the Gulf has been loan defaults and debt renegotiations that have forced them to set aside cash they could have booked as profits. Provisions for troubled loans have been consistently on the rise even through last year, when many banks and analysts were confident the financial turmoil would soon subside. Provisions rose by 36 per cent in December compared with the same month in 2009, reaching Dh44.3 billion, according to Central Bank data released this week.
High provisioning levels coincide with several major debt restructurings at companies unable to repay borrowings on time after the onset of the financial crisis.
Dubai World, a government-owned conglomerate, reached a deal last September to restructure $24.9bn of debt and extend repayment over five to eight years.
Global Investment House in Kuwait struck a deal to restructure about $1.7bn of debt, and The Investment Dar, another Kuwaiti company, this week said it was nearing an agreement to extend repayment of about $3.6bn of debt.
Banks have also been exposed to Saudi Arabia's struggling Saad and Al Gosaibi groups and other debt-laden businesses.