SHANGHAI (Reuters) - China's small and medium-sized banks, including city commercial banks, are not allowed to list on the mainland yet because regulators are still studying the risks and merits of such IPO requests, the state-backed China Securities Journal reported.

The comment, attributed to an official from the China Securities Regulatory Commission (CSRC), made clear for the first time that the government will, for the moment, decline all requests by smaller banks to list.

But city commercial banks are still allowed to list in Hong Kong, as Bank of Shanghai is preparing to do.

An earlier newspaper report said the CSRC is reluctant to approve applications by smaller banks because a wave of bank IPOs may further dampen investor confidence in an already sluggish A-shares market.

The regulator could also be worried about the risks of city commercial banks expanding their businesses beyond their regions, as these banks are criticized by some analysts for outright bankrolling of local governments, which are not always creditworthy.

Many of the country's 185 city and rural commercial banks are in desperate need of capital to fend off rising competition from rivals and meet tougher capital requirement rules.

Chinese regulators have not approved any mainland IPO plans by smaller banks since 2007, when Bank of Ningbo <002142.SZ>, Bank of Beijing <601169.SS> and Bank of Nanjing <601009.SS> were listed, seen partly due to worries that a wave of new IPO shares may hurt the stock markets in Shenzhen and Shanghai.

(Reporting by Carrie Ho; Editing by Eric Meijer)

Source: http://finance.yahoo.com/news/chinas-city-banks-still-barred-022213797.html