China Merchants Bank (CMB), labeled the best bank in China by finance magazine Euromoney, announced on Wednesday that it had been given the green light from the national banking regulator to set up a financial leasing company.

The Shanghai-registered leasing company will be solely funded by the CMB, with a registered capital of two billion yuan (US$266.89 million).

The main business of the company will cover procurement of aircraft, ships and other large equipment, and financing for small and medium-sized companies. The bank is now making final preparations to open for business.

"The non-banking financial business of this new company will complement the bank's traditional banking businesses," said the CMB in a statement.

Other major banks including China Construction Bank, the Industrial and Commercial Bank of China, the Bank of Communications and the China Minsheng Banking Corp have got the nod from the China Banking Regulatory Commission (CBRC) to set up financial leasing companies. The Bank of China, the country's second largest lender, bought Singapore Aircraft Leasing in 2006.

The Rules Governing Financial Leasing Companies that took effect this March have allowed domestic commercial banks to hold stakes in financial leasing companies.

"In the United States, about 30 percent of large operating equipments, including aircraft and ships, are leased compared with only three percent in China, which indicates a huge potential market," said Yang Boqin, a senior official with Shanghai Ronglian Finance Leasing Share Co Ltd.

Cai Esheng, deputy chairman of the CBRC, has said more qualified banks would be allowed to set up financial leasing companies based on actual needs.