China will allow three to five fully private banks to be set up this year as part of efforts to further open up the sector, the banking regulator said.
At a work conference on Monday, the China Banking Regulatory Commission (CBRC) said it will allow private capital either to take part in restructuring existing banks or set up new ones at their own risk, according to a statement.
"The first batch of three to five private banks will be set up on a trial basis," the CBRC said, adding they will be approved when conditions are "mature".
Communist authorities retain a strong grip on the economy. At present almost all banks are state-owned, either at the national or local level, although some have floated minority stakes.
Senior bank officers must be approved by the CBRC.
The latest move is in line with a document released in November after a key Communist Party meeting at which Beijing pledged to open up its financial sector to both foreign and private capital.
But in a sign that controls would only be loosened so far, the regulator said the new entities would be subject to strict procedures and enhanced supervision.
So far nearly 70 private banks have won tentative approvals from China's industry and commerce authorities, the state-backed Securities Daily reported.
Companies keen to establish private banks include home appliance retailer Suning and Internet giant Alibaba, which has an existing third-party payment business division, state media said.
The CBRC also pledged gradually to relax restrictions on foreign capital entering the domestic banking sector and conducting yuan business.