China Construction Bank (CCB) and Europe's second largest lender Banco Santander, are planning to set up a joint financial holding company and open 100 village banks in the country over the next three years, people familiar with the matter told China Daily.

The joint venture is likely to be set up with a registered capital of 3 billion yuan and this could eventually go up to 5 billion yuan in three years. CCB would invest 1.8 billion yuan and hold a 60 percent stake in the joint venture, while Santander would hold the balance, the sources said.

The holding company would hold a 51 percent stake in each of the newly set up village banks.

Village banks are financial institutions set up primarily for farmers and should have a registered capital of at least 1 million yuan. They can accept deposits and also conduct lending activities.

The CCB proposal, which would create the first financial holding company in the country, and a new model to develop rural finance, is yet to be approved by the State Council, according to the sources.

"The model could help to create a unified plan to develop China's rural financial services network. It would also help to introduce foreign banks' advanced experience in rural financing," the sources said.

Spanish lender Santander, which had a market value of 54 billion euros by the end of 2008, was the largest lender in the euro zone until the global financial crisis.

Its subsidiary, Banesto Bank, has a strong presence in rural financial services. The bank has around 1,900 branches in Europe, with nearly one-third of them in rural areas.

Currently foreign banks are not permitted to hold more than 20 percent stake in Chinese financial institutions. However, the stipulation does not exist for village banks invested by foreign lenders.

China had set up over 100 village banks by October 2009 since the government introduced new investors including foreign and private capital to rural areas at the end of 2006.

The nation plans to have 1,000 new village banks within three years to finance fund-thirsty rural areas, the banking regulator said in July.

There are around 230 million farming households in the country and nearly half of them need bank loans to develop farming business. This has opened up huge opportunities for domestic and foreign banks in rural areas.

Foreign lenders have been active in China's village banks since the end of 2006. HSBC, Standard Chartered and Citibank have five, one and three village banks respectively in China.

CCB, ranked second by market value globally, aims to build the joint venture to the largest one in China's rural finance sector in three years.

"The bank could account for 15 percent of the rural financial market over the next three years," said CCB sources.