China plans to expand a trial program to allow the creation of private banks and ease the entry of private capital into the banking sector next year, the China Banking Regulatory Commission chairman said on Tuesday.

Shang Fulin said the CBRC will "expand pilot programs for privately funded banks, accelerate the launch of guidelines on the development of such banks, and improve their regulation framework".

The CBRC has already approved applications for the creation of five privately funded banks this year and helped push forward their creation in terms of building corporate governance and risk management frameworks.

On Dec 12, the Shenzhen Banking Regulatory Bureau gave the green light, for instance, to Internet giant Tencent Holdings Ltd to start its own banking operation, Webank, taking a 30 percent stake in the business.

With registered capital of 3 billion yuan ($482 million), Webank will focus on financial services including deposit and loan services to individual consumers as well as micro-sized and small enterprises.

China has been encouraging more private capital into rural commercial banks, especially. The nation is also urging private companies to merge, acquire and restructure problematic rural credit cooperatives to defuse institutional risks and promote ownership reform, the CBRC said.

Shang said the regulator will expand the pilot program by encouraging wider participation of private capital.

It will also promote increased private shareholding in, and the creation of, village banks, and work to attract private capital into institutional restructuring and ownership reform of rural credit cooperatives, all based on equal terms with other forms of capital.

As a result, he said, organizations will have more diversified shareholdings and stronger capital bases, operational vitality and competitiveness.

The preferred participants are private companies with steady operations, said the banking regulator, and which have the ability to replenish capital continuously.

Wen Bin, principal researcher at China Minsheng Banking Corp Ltd, said: "The privately funded banks already approved by the government are targeting areas that lack financial services, such as communities and small businesses."

Market insiders say companies across China's northeastern, central and western regions have submitted initial plans for the establishment of private banks, and the CBRC is considering private capital to be used to set up banks in many regions where financial services are still weak.

This year, 14 non-bank financial institutions were created whose controlling interest is held by private companies, with another 108 village banks created using private capital.