The new bank will be based in Jiangsu's capital Nanjing and be formally established later this year, said Xinhua, without naming the banks or the sources at the China Banking Regulatory Commission.

The new bank would invite foreign strategic investors to further boost its capital base, said the agency. However, a plan to dispose of the banks' non-performing assets has yet to be mapped out.

China has restructured the country's largest state run banks by removing billions of dollars of bad loans from their books and bringing in foreign strategic investors, resulting in the successful listings of the China Construction Bank and Bank of China .

With Industrial and Commercial Bank of China [ICBC.UL], the country's biggest lender, set to list later this year, investors have turned their attention to the country's more than 100 city commercial banks.