UFJ Bank said Thursday it has agreed to forge a loan alliance with China Merchants Bank in an effort to expand the supply of yuan funds to Japanese companies operating in China.

It is the first time a Japanese bank has joined forces with the Shenzhen-based bank.

In China, foreign banks are only allowed to extend loans in yuan in certain locations, such as Shanghai and Tianjin.

Under the agreement, UFJ Bank, a core bank of UFJ Holdings Inc., can ask China Merchants Bank to issue yuan loans to companies operating in other areas.

The banks will also cooperate on syndicated loans and purchases of accounts receivable held by Japanese companies operating in China, UFJ officials said.

China Merchants Bank ranks seventh in China in terms of assets. It operates 280 outlets.

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