The reforms are expected to help improve profits at mainland lenders.

Foreign banks at present enjoy preferential tax rates of 15 percent, while domestic lenders are taxed at a rate of 33 percent of income.

"The tax reform aims at unifying income tax rates for Chinese banks and foreign banks, and improving Chinese banks' profitability once the market is fully opened under World Trade Organization obligations," said DBS Vickers banking analyst Jasmine Lai in a report.

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"The reforms are likely to be implemented in 2008 with a grace period of two to three years. The 5 percent business tax may also be scrapped in future." Lai expects the development to boost return on equity by 1.2 to 2.0 percentage point and earnings by 9 to 13 percent percentage points at local banks if the income tax rate is trimmed to 25 percent from the current 33 percent.

The China Banking Regulatory Commission Thursday detailed requirements for foreign lenders to access the yuan market.

Details of the clearing system are yet to be revealed.

The rules, effective December 11, allow foreign banks to incorporate local units with a minimum of registered capital of 1 billion yuan and to maintain a loan-to-deposit ratio of less than 75 percent.

Foreign banks generally welcomed the rules, but called for more details and a extended grace period, especially on meeting the requirement of the loan-to- deposit ratio.

Meanwhile, London-based Standard Chartered Bank said Thursday it had submitted an application to CBRC to incorporate its business in China.

HSBC (0005), Hang Seng Bank (0011), Bank of East Asia (0023) and Dutch lender ABN Amro Bank have said that they aim to incorporate their subsidiaries by next March.

"What the CBRC has announced is a framework that has not yet been filled with details. I anticipate the details will be issued officially in a week," said Peter Wong Tung-sing, executive director of Hongkong and Shanghai Banking Corporation.

"We will submit our application to incorporate once our bank has reviewed the details and CBRC starts accepting applications," added Wong, who is also chairman of the Hong Kong Association of Banks.

The rules outlined by CBRC indicate that an application requires six months for approval, and an extension of three months should be allowed, so the procedure of approving an application should take nine months, Wong said. CBRC's assistant to chairman Wang Zhaoxing said in Beijing the regulator has set a grace period.

Details will be released through a further document in the coming days.

Mainland banks have also welcomed the changes.

Yan Xiaoyan, general manager at Bank of Beijing said: "The rules will attract more foreign banks to enter into China's banking industry, intensifying competition.

"It will also help improve the management at domestic lenders, as well as their financial products."

Analysts believe mainland banks, especially the three largest institutions, will benefit more than foreign banks from the unified tax rate.