BEIRUT, Lebanon - Egypt-based investment bank EFG-Hermes has bought a 20 per cent stake in Bank Audi in one of the largest direct investments in Lebanon's history as part of its regional expansion plans.

EFG-Hermes acquired the stake by subscribing to 7.5 million shares worth around $450m, which Audi issued as part of a $600m capital increase to fund its own crossborder growth.

"We are confident that a strong strategic co-operation will develop between the two institutions in the context of their respective regional development strategies," Bank Audi Chairman Raymond Audi told a Press conference in Beirut.

The capital increase brings Audi's shareholder equity to $1.5 billion, he said, the largest among banks in Lebanon.

Shares in EFG-Hermes were up 5.5pc at £162.50 by 1343 GMT. Global depositary receipts in Bank Audi were up 10pc at $68.75.

Audi, one of Lebanon's top two banks with operations in Arab and European countries, said it would sell another 2.5m shares as a private placement or as part of a public offering.

EFG-Hermes, which already has operations in the Gulf, said it planned to raise its own issued capital to about $253m from a private placement and a rights issue.

Flush with cash and looking to cut their dependence on government debt, Lebanon's biggest banks have been expanding aggressively into neighbouring Arab states but have found that serious growth requires major capital injections.

Audi is already present in Syria and Jordan and has been eyeing Cairo Far East Bank and United Bank of Egypt.

Lebanon's central bank has for years encouraged Lebanon's more than 50 banking groups to consolidate. But while some top banks have snapped up small institutions, the process has been slow among the big banks, whose assets far exceed the size of the country's entire gross domestic product.

Now they have begun to attract foreign investors in what bankers predict is the beginning of a trend.

A state-owned Qatari body bought BLC bank last month for $236M. Another top Lebanese bank, Byblos, raised its capital to $700m in December, also to fund regional expansion.

As for Audi, "I believe this is the biggest direct investment in the history of Lebanon. It is the start of what is to come," Hassan Heikal, chief executive of EFG-Hermes, told the press conference.

"The Lebanese market will become an attractive one for investors."

Heikal said the alliance with Audi brought together investment and commercial banking in a region where most banks have not been as diversified as major international banks. "The importance of this is in the transformation of the shape of Arab banks," he said. EFG-Hermes has been expanding its regional activities. Last month, the investment bank said it had received a licence to operate in the Dubai International Financial Centre, and it is also seeking a licence to work in Saudi Arabia.