Profits at Abu Dhabi Islamic Bank topped Dh1.2 billion (US$207.9 million) last year as it targeted growing its expatriate customer base.
Net income climbed 5 per cent despite taking provisions of more than Dh800 million.
The bank, which operates 75 branches, also trimmed costs and cut 118 jobs in what it described as a challenging market with an increasing level of regulatory uncertainty.
"While we are encouraged by the recent announcements of an Abu Dhabi Government-led economic recovery plan and the upturn in certain areas of Dubai's real estate and tourism, our customers are still feeling the effects of the prolonged downturn," said Tirad Al Mahmoud, ADIB's chief executive.
"Our strong historical focus on serving the UAE national segment has, in particular, been under regulatory deflationary pressure and as a result has impacted our retail growth volumes."
Despite improving economic sentiment throughout the Emirates, the bank said it was still too early to call a meaningful improvement in the credit environment.
ADIB stands to benefit from recent moves to boost the Islamic finance industry in the UAE, said Wadah Al Taha, the chief investment officer at Al Zarooni Group.
"There will be better opportunities for Islamic institutions in 2013 and some clients will be shifting to them," he said.
ADIB said preserving cash was a main focus during the year as customer financing growth was restricted to 4.8 per cent.
The bank plans to open at least five more branches this year and is also pressing ahead with openings in Sudan and Qatar to add to its branches in the United Kingdom, Iraq and Saudi Arabia.
ADIB took some Dh161m in provisions during the fourth quarter of last year bringing total credit provisions to more than Dh3bn.
Total net provisions now stand at 5.7 per cent of gross customer financing assets, the bank said.
"We expect 2013 to be yet another year of moderate asset growth coupled with stiff competition between banks, which will place pressure on credit margins," said Mr Al Mahmoud.