China's banking regulator on Wednesday announced a plan to set up financial institutions in 1,294 rural locations by 2011 to boost rural development.

The new outlets -- 1,027 township banks, 106 lending firms and 161 rural mutual cooperatives -- would be established in addition to the existing 118 rural institutions established since 2006, the China Banking Regulatory Commission (CBRC) said in a statement on its website.

The CBRC asked local banking regulatory bodies to encourage lenders to open rural financial institutions in selected areas where financial services are needed.

The existing 118 institutions comprise 100 rural banks, seven lending firms and 11 rural mutual cooperatives. They had extended 5.5 billion yuan (US$804 million) of credit to rural residents as of the end of June and 8.2 billion yuan to small and medium sized enterprises.

"Rural finance remains the weakest point in the country's financial system and the existing rural financial institutions are inadequate in providing funds to farmers and enterprises in rural areas," the statement said.

By the end of last year, 1,424 counties still lacked financial services, the statement said.

The CBRS would maintain its prudence in supervising rural financial institutions, ordering lenders to keep capital adequacy ratio no less than 8 percent at any time and provisions for asset losses above 100 percent.

The regulator also said it would study preferential tax policies to encourage rural financial services.

The government has been trying to channel lending to the countryside to boost rural development. The CBRC relaxed rules on rural banking in 2006, allowing more domestic and foreign financial companies to establish rural banks and loan companies in selected areas to boost funding for farmers.

(Xinhua News Agency July 30, 2009)