HSBC has got the nod from China's banking regulator to set up a village bank in the central province of Hubei, becoming the first foreign bank to expand its business in the country's vast rural areas, HSBC announced on Thursday.

"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.

Chinese farmers and rural enterprises currently have few places to get funds for their businesses. 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 to extend service in the rural areas as a way to upgrade the country's under-developed rural banking sector.

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 (385,000 U.S. dollars) 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.