SHANGHAI, May 15 -- The nurturing of private lenders in China gained traction on Wednesday as Shanghai's first private bank prepared to open in the free trade zone (FTZ).

China's banking regulator approved five private banks in Tianjin, Shanghai, Zhejiang and Guangdong, to bring more private players into a sector dominated by the state.

Each private bank has to constitute capital from at least two private firms. The bank to be established in the FTZ will be jointly formed by local private conglomerates Fosun and JuneYao.

Sources close to authorities said there are issues surrounding the equity contribution of each firm for the five banks. Some of the firms have equity held by foreigns and regulators want the pilots to be purely Chinese concerns.

Regulatory details for banks in the FTZ were also revealed on Wednesday. It is now easier for banks to add or upgrade new branches and make executive appointments in the zone with any changes to be reported to regulators retrospectively.

Branches in the zone may also sidestep the 75 percent loan-to-deposit ratio that applies to all banks in China. While the ratio puts a cap on the amount banks can lend, branches may coordinate their lending as long as total loan balances do not exceed 75 percent of total deposits.

"Our interest is whether this rule (loan-to-deposit ratio) will also govern the Free Trade Account (FTA) in the future," said economists from ANZ Banking Group in a research note on Wednesday.

Authorities have previously said that a free trade account system will be rolled out during the first half of this year, likely bringing significant changes to restrictions on cross-border capital flow under capital accounts and will be a key feature of banking in the zone, according to ANZ.

Banks are encouraged to grant more autonomy to branches in the Shanghai zone but should place prudent oversight over liquidity, compliance and cross-border risks.

"The overall tone of today's release reflects that the Shanghai authority sticks to the negative list approach and adopts a 'file and use' spirit to regulate banking activities. We believe that adopting this approach is an important step to support China's financial innovation," ANZ economists said.

To date, 11 Chinese and 20 foreign banks have registered in the FTZ, and have been actively involved in a range of cross-border renminbi transactions authorities have permitted since earlier this year, helping multinational firms improve efficiency and costs in deploying funds and accessing cheaper offshore financing.

During the first four months of this year, firms in the zone have secured 4.5 billion yuan in offshore loans. A total of 12 firms have participated the cross-border renminbi pooling pilot, mobilizing yuan-denominated funds of 4.6 billion. Cross-border settlement rose 90 percent from a year ago to 42.6 billion yuan.