China has decided to allow commercial banks to issue preference shares to raise funds, the Chinese securities and banking regulators announced on Friday.

China Securities Regulatory Commission (CSRC) and China Banking Regulatory Commission (CBRC) unveiled specific procedures and requirements in an online guideline, saying the program will optimize banks' capital structure and help build a multiple-tier capital market in the country.

The move, making banks the first batch granted official approval, is expected to lay the foundation of the preferred shares program that will replenish tier one capital.

Preference shares, along with common shares are the two primary types of stocks that companies offer to investors. Preference share holders have priority rights over ordinary share holders in relation to distribution of profits and residual assets.

China announced on March 21 to launch a pilot program allowing eligible listed and unlisted public companies to issue preference shares in a bid to open up additional financing channels and provide more investment instruments.

According to the guideline, banks should file applications to both CSRC and CBRC, submitting their issuing plan, financial reports, and approval from shareholders, to prove their qualification.

Before the issuing, unlisted banks were required to enter National Equities Exchange and Quotation, a share transfer system for small and medium-sized enterprises, the guideline said.

The regulators said the program will open up additional financing channels for banks to diversify their capital structure and improve their tier one capital adequacy ratio, a main measure of financial strength, in a bid to defend against risks.

The move will also relieve financing pressure on the country's A share market and stimulate the real economy.

The CSRC promised to simplify administrative procedures of the issuing, intensify regulation on information disclosure and monitoring efforts, as well as balance the benefits and interests of preferred and common shareholders.