China's banking regulator said Friday it has approved three Hong Kong banks to open branches in the country as part of a free trade deal that gives Hong Kong's lenders greater access to the mainland market.

Wing Lung Bank, Shanghai Commercial Bank and Dah Sing Bank have been approved to set up branches in Shenzhen, the China Banking Regulatory Commission said in a statement on its Web site.

Under a free trade deal between Chinese mainland and Hong Kong, the asset requirements for Hong Kong banks and finance companies wishing to enter the mainland market were slashed to US$6 billion from US$20 billion from Jan. 1.

The pact allows smaller banks such as Wing Lung and Dah Sing, which had been excluded by previous restrictions, to tap the vast mainland market.

Bigger rivals, including the Hong Kong units of HSBC Holdings Plc, Standard Chartered Plc and Bank of East Asia, have already established their presence on the mainland.

Earlier last week, China gave the green light to four foreign banks to conduct yuan-denominated business with domestic firms for the first time, marking its latest step to open up the sheltered market.

Citibank, HSBC, Bank of East Asia and Japan's Mizuho Financial Group were allowed to do such business in 13 cities, the banking regulator said.

China had promised to allow foreign banks to conduct yuan businesses with Chinese companies within two years of joining the World Trade Organisation in late 2001.

Editor: Donald