HSBC has received approval from China's banking regulator to create a village bank in Hubei Province, becoming the first foreign bank to take its business to rural areas, HSBC announced on Thursday.

The village bank will be opened in Zengdu District, which has a population of 2 million in the town of Suizhou at the end of 2007 and is expected to employ 25 people.

"The new bank will provide financial service tailored to rural communities and local enterprises," said Vincent Cheng, chairman of the HSBC Bank (China) Company Ltd.

A problem afflicting Chinese farmers and rural enterprises at the moment is their relative lack of access to financial institutions. Official figures show Chinese farmers rarely obtain loans of more than 5,000 yuan. 

On Monday, the China Banking Regulatory Commission (CBRC) vowed to help more banking institutions enter the rural banking sector and help it to develop. At the end of 2006, the CBRC scrapped working capital limits for domestic financial institutions in rural areas so that banking networks could be developed in the countryside.

It also lowered the registered capital threshold to 3 million yuan (US$385,000) for banks in counties and 1 million yuan in villages and towns.

The CBRC has approved six pilot schemes in six provinces including Qinghai and Gansu. Two of them -- Huimin village bank and Huimin finance company -- began operations last Thursday in Yilong county of southwest China's Sichuan Province.

HSBC has developed financial business in rural areas in Brazil, India, Indonesia, Philippine and Mexico.