A new report by an independent consultant says the Hong Kong banking system is robust, and needs just a few adjustments to cope with potential challenges.

In his report released yesterday, consultant David Carse said the city's banking regulator should strengthen its links with the watchdogs from other regions, including the mainland.

Given the increasing trend of Hong Kong lenders expanding north, and more mainland banks moving south, Carse said that the Hong Kong Monetary Authority (HKMA) should work closely with the China Banking Regulatory Commission (CBRC).

Speaking about the impact of the US subprime turmoil, Carse said the ripple effect of subprime-related products, such as special investment vehicles (SIVs), has come to an end.

Carse doesn't believe local lenders possess a considerable amount of subprime products, though he has not gone through their latest financial results.

But he said that the HKMA should absorb the international lessons from the crisis to determine its supervisory agenda for the future.

He also said local lenders should publicly disclose their investment portfolios and their mainland investments.

Carse would also like to see the HKMA double its coverage of money held in banks, in case, for instance, a bank is forced to close.

He said the existing Deposit Protection Scheme should review the level of deposit protection and consider raising the limit from HK$100,000 to HK$200,000 without increasing premiums.

(HK Edition 07/18/2008 page2)