* DIB in talks for 40 pct stake in Indonesian Islamic bank -CEO
* Deal aimed for by yr-end, to pay with own cash
* Q1 net profit 636.6 mln dhs vs 301.7 mln dhs yr-ago -statement
* Local economic growth fuels higher income, less provisions
* 2014 profit growth should be similar to 2013 growth -CEO (Recasts with acquisition, adds detail and context, 2014 profit forecast)
By Mirna Sleiman and David French
DUBAI, May 1 The chief executive of Dubai Islamic Bank (DIB) said on Thursday it was in talks to buy a 40 percent stake in an Indonesian Islamic lender, as the bank eyes the world's most populous Muslim country to help diversify its revenues.
Though DIB and other banks in the United Arab Emirates are now seeing profits rise on the back of a local economic upturn, many suffered earlier in the decade from the bursting of a local real estate bubble and big debts at Dubai's state-linked firms, highlighting the risks of being reliant on one market.
Adnan Chilwan told reporters on Thursday that DIB hoped to conclude a deal before the end of the year and that it would pay for the purchase using its own cash reserves.
"We see good potential in Indonesia," Chilwan told a media event, declining to name the acquisition target but adding its parent was a listed company.
Chilwan told Reuters in March that DIB planned to expand its operations into Indonesia, Kenya and other African countries.
Indonesia has the world's biggest Muslim population but its Islamic finance market lags neighbouring Malaysia: Indonesian Islamic lenders hold about 4.8 percent of total banking assets compared with over 20 percent for their Malaysian counterparts.
Indonesia has 23 Islamic banks, of which only one - PT Bank Panin Syariah Tbk - is listed. The country's central bank expects sharia-compliant banking assets to expand between 19 and 29 percent this year.
Faced with lower revenue and substantial provisioning for bad debts, several UAE banks have taken steps to diversify into other countries.
Last year Emirates NBD completed the purchase of BNP Paribas' Egyptian unit, while National Bank of Abu Dhabi has also said it wants to expand in countries from Africa to Asia.
Earlier on Thursday, DIB posted a doubling of first-quarter net profit to 636.6 million dirhams ($173.3 million) in the first three months of the year. This was well above the average forecast of four analysts polled by Reuters, who expected a profit of 506.1 million dirhams in the period.
Chilwan said on Thursday he expected the bank's full-year net profit growth to be similar to 2013, when it posted a 42 percent jump in earnings.
DIB's profits in the first quarter were boosted by higher income, partly driven by increased lending to both corporates and consumers.
Loans and advances had increased to 59.9 billion dirhams by the end of March - up 6.8 percent on the figure at the end of 2013.
The improved conditions of the local economy also helped asset quality, with bad loan provisioning in the first quarter of 2014 down 45.9 percent year-on-year to 195 million dirhams.
DIB's last acquisition came last year when it completed the takeover of Dubai-based mortgage lender Tamweel, having previously owned 58.2 percent of the firm before the buyout offer.
($1 = 3.6730 UAE dirhams) (Editing by Sophie Walker)