BEIJING - The People's Bank of China (PBOC) has given the nod to two local lenders to issue equity-conversion capital bonds in the interbank bond market to replenish capital, said a statement posted on Monday on the PBOC's website.

Zhejiang Chouzhou Commercial Bank and Ningbo Commerce Bank, both based in East China's Zhejiang province, were the two lenders that obtained the approval.

On Jan 20, Ningbo Commerce Bank successfully issued 500-million-yuan ($77 million) equity-conversion capital bonds with no fixed maturity.

Such bondholders will be able to convert debt into stocks and participate in the distribution of the issuer's remaining assets if specific risk events arise. It is a tool created to help the country's undercapitalized smaller banks.

Financial regulators will further encourage qualified small and medium-sized banks to issue such bonds to replenish capital and strengthen capabilities to serve the real economy and defuse risks, the statement said.