Abu Dhabi-based First Gulf Bank has repaid government funds that were offered to banks to help shore up the banking system in the wake of the financial crisis and a rapid withdrawal of deposits from the UAE.

The repayment of AED4.5bn ($1.2bn) to the Finance Ministry is the most significant repayment yet of the funds the government put into the banking system during the financial crisis.

The Finance Ministry put AED70bn on deposit in the UAE banks during the financial crisis to help stimulate lending, and in 2009 most banks converted this into tier 2 capital that is used as a cushion against future losses. Although some banks have already started to take advantage of improved conditions in the UAE financial sector to repay the government, First Gulf Bank is the largest single repayment so far. Other banks are expected to announce further repayments this year, four years ahead of schedule as they replace the government debt with less expensive funds raised in the capital markets.