David Carse will advise banking watchdog on how to tackle the nation's bad loans Outgoing Hong Kong banking regulator David Carse will advise the mainland banking industry on how to solve the country's non-performing loans problem. Mr Carse, 56, who ends his 12-year term on Friday to take up the post of director-general of the Jersey Financial Services Commission on November 3, will also be an honorary adviser to the China Banking Regulatory Commission (CBRC). Mr Carse said he would visit the mainland several times a year to help the CBRC with its banking reforms, including the restructuring of the four state-owned banks, which are struggling under a huge pile of bad debts. He will also offer advice on how mainland banks can increase their capital to match international banking regulations under the new Basel rule. Commenting on the Bank of China's recent investigation into its lending to arrested Shanghai tycoon Chau Ching-ngai, Mr Carse said the bank had done a lot to improve its risk management. The episode would serve as a lesson for the bank to improve its management team and lending procedures, he said. As Hong Kong's longest-serving regulator, Mr Carse ranked the collapse of BCCI Hong Kong as the most memorable event during his tenure. The shutdown of the bank in July 1991 came a few months after his arrival from England, where he had been working for the Bank of England for 20 years. The collapse of BCCI Hong Kong saw many of the bank's 35,000 depositors marching in the streets of Central, where they burned posters of Mr Carse and other financial officers. Depositors later got back their combined $10 billion in deposits, plus interest. 'Looking back, the BCCI was only a short episode in the history of Hong Kong. There have been many events in the past 12 years, such as the handover, the Asian financial crisis and the outbreak of Sars,' Mr Carse said. The BCCI collapse led to many banking reforms, such as the requirement for banks to disclose inner reserves, the tightening of liquidity ratios of banks and the introduction of the 70 per cent mortgage ceiling. Of all the reforms, the most difficult one to convince banks to adopt was interest-rate deregulation, which allowed banks to decide their own rate instead of relying on a cartel. Mr Carse regrets not being able to implement the proposed deposit insurance scheme, which is being debated by legislators and is scheduled for introduction in 2005. His last piece of advice for local banks concerns the need to upgrade risk-management systems. 'Banks in Hong Kong traditionally conduct simple business - that is they take in saving deposits and lend out mortgages and other loans to earn margins,' he said. 'But now, they are diversifying their source of incomes by investing in bond securities and earning fees by trading for clients. With this changing situation, banks should upgrade their risk-management model.' The new working model would lead to more bank consolidation in Hong Kong, he said. After more than a decade in Hong Kong, Mr Carse departs with only a few phrases of Cantonese to his credit - 'no problem' being the one he can accurately pronounce.