* CBRC to cut bad loan provision coverage ratio to 120-150pct
* Frees up more capital for banks
* Coincides with official push to clamp down on financial risks
* Implementation to take account of bank performance (Adds details, background)
SHANGHAI, March 6 (Reuters) - China's banking regulator plans to reduce the amount of funds that banks must set aside to cover bad loans, two sources with direct knowledge of the situation said on Tuesday.
The China Banking Regulatory Commission (CBRC) plans to cut the provision coverage ratio for commercial banks to 120-150 percent from 150 percent, the sources said.
The move means banks will have more capital to work with and lend out to support economic activity, at a time when an official "deleveraging" crackdown has hurt their riskier and more lucrative operations.
The CBRC was not immediately available for comment.
The regulator said the effective date will be decided by local CBRC bureaus, one source said.
However, many of China's banks have already been operating below the 150 percent redline.
The cut was reported earlier by Chinese business magazine Caixin. Last year, media reported that seven listed banks planned to adjust their provision coverage ratio to between 130 to 140 percent.
The CBRC also plans to set the loan provision ratio at 1.5 to 2.5 percent from 2.5 percent for commercial banks, said the two sources who saw a document detailing the changes.
In adjusting provisions, regulators should take into account each bank's individual circumstances, capital ratios and the extent of bad loan write-offs among other things, they added.
China aims to expand its economy by around 6.5 percent this year, the same as in 2017, while pressing ahead with its campaign to reduce risks in the financial system, Premier Li Keqiang said Monday.
Chinese commercial banks non-performing loan ratio steadied at 1.74 percent at the end of December, unchanged from the end of the third quarter, the CBRC said last month.
By value, NPLs hit 1.71 trillion yuan ($269.78 billion) at end-2017, up from 1.67 trillion yuan at the end of September. But many analysts suspect Chinese banks are carrying much more bad debts on their books.
($1 = 6.3386 Chinese yuan renminbi) (Reporting by Li Zheng and Engen Tham; Editing by Kim Coghill)