Five provinces have been authorized by the banking regulator to set up local asset-management companies, according to a report by Anhui Daily, a newspaper of the Anhui provincial government, citing a statement from the China Banking Regulatory Commission.

The five AMCs in Jiangsu, Zhejiang, Anhui, Guangdong and Shanghai were approved to carry out bulk transfers of non-performing assets. Banks, trusts, finance companies, financial leasing companies and other financial institutions can sell their bad assets to these AMCs. Experts said the move will ease the pressure of an increasing bad loan rate.

In the past, China only had four national asset management companies, including China Cinda Asset Management Co, which were established in 1999 for the purpose of handling the bad loans of commercial banks.

Registered in Wuhu, Anhui province, Anhui Guohou Asset Management Co was jointly founded by a Shanghai-based AMC and several local enterprises with a registered capital of 1 billion yuan ($160 million) and will gradually receive increased investment as business develops.

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Four other local AMCs - Jiangsu Asset Management Co, Zhejiang Capital Management Co, GDF Asset Management Co and Shanghai State-owned Assets Operation Co - are ready to launch, according to online business news provider Caixin.

The four provincial AMCs have already completed preparations and are all wholly controlled by State-owned enterprises. The registered capital of Shanghai State-owned Assets Operation is 5 billion yuan; 5 billion yuan for Jiangsu Asset Management; 1.2 billion yuan for GDF Asset Management; and 1 billion yuan for Zhejiang Capital Management.

Anhui Guohou was recently established by one of the four national AMCs, Orient Asset Management Corp, and is the only one to bring in private capital.

However, compared to the four national AMCs, non-performing assets acquired by local AMCs can only be disposed of via debt restructuring and are not transferable outside their region.

The China Banking Regulatory Commission did not reply to a request for comment. Bloomberg had earlier confirmed the news with unnamed sources.

As bad assets in China's local banks are expected to increase in the wake of larger downward pressure on the economy, there is an urgent need for many provinces to have an agency specializing in the disposal and acquisition of non-performing financial assets to resolve and reduce local financial risks.

Analysts said the AMCs specializing in the disposal of non-performing financial assets will help improve regional financial environments.

Lu Yiwen, an analyst with Shanghai-based Shenyin & Wanguo Securities Co, said she believed that the role of local AMCs is subject to their ability in disposing of non-performing assets. The scale of their disposal will be limited in the short term, and their business will not be a primary way to dispose of non-performing bank loans for lenders seeking IPOs, which is a usual role of AMCs.

"But it is in favor of accelerating the disposal of non-performing assets in higher-risk areas such as the Yangtze River Delta region," she said.

The latest data from the CBRC show that up to the end of June, the balance of non-performing loans of commercial banks reached 694.4 billion yuan, up 17 percent from the beginning of the year. The non-performing loan ratio was 1.08 percent, the highest in the last six quarters.

The bad loan ratio in Shandong province reached 1.57 percent, an increase of more than 25 percent in the past six months.