Jiangsu Bank, created in China's drive to strengthen its banking sector through mergers, will start operating this month and may attract strong interest among potential foreign investors, industry sources said on Monday.

The bank was formed by the merger of 10 small city commercial banks and urban credit cooperatives in the eastern province of Jiangsu, near the financial hub of Shanghai, said an official at the China Banking Regulatory Commission's (CBRC) Jiangsu branch.

"Everything has been prepared and Dec. 28 will be the date on which Jiangsu Bank opens for business," said the official, who declined to be identified before the official announcement.

The new bank, headquartered in the provincial capital of Nanjing, has 130 billion yuan (US$16.6 billion) of assets, making it a relatively small member of the second tier of Chinese banks.

But it is located in one of the richest provinces in China: Jiangsu has 6 percent of the country's 1.3 billion population but contributes around 10 percent of its economic output.

Foreign investors are not expected to be allowed to buy stakes in the bank during its initial months, but as in the case of other financial institutions under restructuring, foreign capital and expertise may well be sought eventually, the sources said.

"The regulators think it would not be good timing to get foreign investors at present. But we all know this will happen sooner or later, so I believe the bank will attract foreign scrutiny from its first day," said a Shanghai-based banker.

"The share price is so cheap that many foreigners would agree to buy without hesitation, I believe, if they were allowed to buy," he added.

More than half the 8 billion shares in Jiangsu Bank belong to the 10 state-owned city commercial banks. Other founding shareholders include several privately held firms and Orient Asset Management Co., one of the country's four biggest asset managers controlled by the Ministry of Finance, the CBRC official said.

Most of the founding shareholders bought their shares at 1.20 yuan apiece, the official added.

Before Jiangsu Bank's launch, the local government helped to clear around 1 billion yuan of bad assets. The bank aims to keep its non-performing loan ratio at around 3 percent, against the current national average of 8 percent, state media reported.

Foreign banks are searching eagerly for Chinese equity partners as the country's banking sector opens further to foreign competition. Last month, a Citigroup-led consortium won the right to buy an 85 percent stake in Guangdong Development Bank for $3.1 billion.

Last October, France's BNP Paribas bought 19.2 percent of Nanjing City Commercial Bank for $87 million, making it the first foreign firm to invest in a bank in Jiangsu.

A single foreign investor can only take up to 20 percent of a Chinese bank and foreign investors cannot buy more than 25 percent collectively, according to Chinese regulations.

Unlike national banks, which can open branches anywhere across the country, smaller provincial and city banks such as Jiangsu Bank are in theory limited to operating outlets within their home provinces.

Jiangsu Bank is China's second lender created through the merger of small city banks. Late last year, Huishang Bank was launched as a combination of 10 small lenders in the eastern province of Anhui. Foreigners, including Singapore's DBS , are in talks about a potential stake in Huishang.