FirstRand, South Africa's second-biggest bank, posted a 22 percent rise in full-year earnings, buoyed by a sharp drop in bad debts, and said it would pay a special dividend.

FirstRand bank said on Tuesday it would pay a special dividend of 70 cents following the sale of two insurance units.

Its shares were up 4.1 percent to 20.87 rand at 0730 GMT.

South Africa's banking industry -- dominated by FirstRand and rivals, Standard Bank, Absa Group and Nedbank -- is slowly recovering from a recession that caused massive job losses and sparked a surge in bad loans.

FirstRand has been outpacing rivals in managing impairments, or bad debts, an area that has been one of chronic weakness for South Africa's "big four" commercial banks.

"We were comfortable with the improvement of the impairments, it was stronger than the other big four banks ... the quality of loan book continues to improve," said Faizal Moolla, an analyst at Avior Research in Cape Town.

"They are actively managing the loan book, making sure they collect all outstanding amounts and having sufficient security in place."

FirstRand said normalised earnings per share, which exclude certain one-time items, totalled 179.4 cents in the year to end-June, compared with a restated 146.9 cents in the 2010 period.

It considers normalised earnings the best measure of its profit.

Bad debt costs totalled 3.78 billion rand, down a third, while net interest income, the measure of a bank's earnings from lending, rose 6 percent to 17.4 billion.

FirstRand shares are up 5 percent this year, making the stock the second-best performer among South Africa's top 4 banks. Shares of smaller rival Nedbank are up 5.4 percent.