CHINA allowed banks to sell loans on its interbank market for the first time yesterday.

Twenty-one banks, including the Industrial and Commercial Bank of China, the Agricultural Bank of China, HSBC Holdings and Deutsche Bank, signed agreements in Shanghai yesterday to join the loan transfer plan.

"The global financial crisis that began in 2008 showed the inefficiency of the existing financial regulatory system in guaranteeing financial stability," People's Bank of China Governor Zhou Xiaochuan said, adding that the start of the loan transfer plan will help with the central bank's macro control, optimize lenders' credit structure and reduce risks.

The start of such a transparent, regulated national loan transfer market is another effort by Shanghai to drive financial innovation as the city bids to become a global financial hub by 2020, Mayor Han Zheng said.

By transferring loans, banks with ample credit resources can trade the assets for more capital and free their tight capital adequacy, while buyers enjoy stable interest income.

Last year the banks extended a record 9.6 trillion yuan (US$1.4 trillion) in yuan-backed new loans.

The central bank aims to cap new loans at 7.5 trillion yuan this year.