China Postal Savings Bank will manage a network of 36,000 outlets nationwide - twice as many as Industrial and Commercial Bank, the country's largest lender. About 60 per cent of its outlets are in rural areas.

In a statement on its website yesterday, the China Banking Regulatory Commission said the new bank will be wholly owned by China Post Group, which was recently registered with capital of 80 billion yuan.

In July last year, the State Council approved a blueprint to separate the regulatory and business functions of the 87-year-old State Post Bureau. China Post Group will handle all the business functions of the postal system.

The CBRC hailed the move as 'an important achievement in China's banking reform'.

At the end of 2005, there was more than 1.3 trillion yuan in deposits in the postal savings system, 9.56 per cent of the domestic deposit base, ranking the bureau just behind the four biggest state-owned lenders.

The CBRC said the postal savings bank would focus on retail services and fee income, taking advantage of its wide geographical spread.

Regulators are trying to encourage domestic and overseas financial institutions to set up branches in underserved rural areas.

The CBRC said the postal bank would set up a rural financial services department to support agricultural development. This work is now done by policy banks and co-operatives.

The postal savings system has been gradually expanding its activities. In March, it received approval to make small loans to individuals to expand its revenue base.

'We've been doing banking services for years and we've added many new functions such as buying corporate bonds, asset-backed securitisation and micro-credit lending,' a bank source said.

The postal savings system has long benefited from government subsidies.

It was formerly required to place a certain percentage of its deposits with the People's Bank of China and in return enjoyed generous interest rates of up to 4.13 per cent on the money.

The deposit requirement ended in August 2003. Since then, the government has said it would find other ways to support the postal savings system, possibly including direct subsidies.

Like many other big banks, the postal savings bank hopes eventually to make an initial public offering, possibly in Hong Kong.

Investment banking sources said the bank aims to raise at least US$$2 billion.

However, many policy decisions still need to be made that could delay an offering.

'We are special. We differ from other banks in terms of our bigger base and the kinds of services we offer,' said another official of the bank.

Regulators are also prodding the postal savings bank to improve its risk management skills.