Deutsche Bank AG will spend 81.6 million euros (US$122.1 million) to increase its stake in Huaxia Bank to become the biggest shareholder of the Chinese bank.

Deutsche Bank's stake will grow to 17.1 percent from 13.7 percent after it buys the share from German private investment firm Sal Oppenheim Jr & Cie.

The German bank will overtake state-run steel maker Shougang Group as Huaxia's biggest shareholder, the Chinese lender said in a filing to the Shanghai Stock Exchange yesterday.

The deal is pending regulatory approval.

It's the second time an overseas bank will be the major shareholder of a Chinese bank after a Citi-led consortium bought Shenzhen Development Bank.

Under current legislation, a single foreign investor can hold up to 20 percent of a Chinese lender while a combined foreign ownership is capped at 25 percent.

The German bank also has a 30-percent stake in Harvest Fund Management Co, China's second-biggest asset manager.

Foreign banks are small players in China, taking a market share of 2 percent. Some foreign banks take a two-prong approach to expand in the Chinese market by setting up their own operations and buying stakes in domestic banks, with mid-sized Chinese lenders being mostly sought after.

Germany's largest bank incorporated locally in China in early 2008 by setting up a subsidiary, Deutsche Bank (China) Co, in Beijing. The bank has branches in Shanghai, Beijing and Guangzhou.

Overseas banks need to be locally incorporated to be able to offer unlimited retail yuan services to the Chinese.