Trust a Crucial Pillar to Our Banking System March 30, 2011

A string of fraud cases within the banking system this year has raised public concern over internal procedures and weak supervision within a number of local banks. In the latest such case, a senior relationship manager at Citibank Indonesia walked away with Rp 17 billion ($2 million) by defrauding her clients. Coming on the heels of other such cases in the first three months of the year, the public has a right to be concerned.

Banks, more than any other corporation, have to be super tight on internal procedures to ensure that the money clients placed with them is safe. Trust and confidence are the pillars on which any banking institution is built as ordinary people place their hard-earned money with banks. Losing this money through fraud can destroy families and erase lifetime savings.

Arguably, there is little a bank can do if an employee decides to steal or circumvent the system but it can ensure that the probability of being caught is extremely high. And even when fraud does occur, the bank is duty-bound to compensate clients for their losses, as Citibank has done.

Notwithstanding the concerns over the recent banking fraud cases, it is important to keep things in perspective. The amounts involved, for example, are miniscule when compared to the Rp 230 trillion in total assets within the banking system. Most large banks are well capitalized and financially sound and as such are not at risk of becoming insolvent.

A few bad apples, in this case employees, should not undermine the entire banking system. Both Bank Indonesia and the government have worked hard to restore faith in the banking system following the 1998 financial crisis and Indonesia today has one of the strongest banking systems in the region. The banking system has also played a key role in the country’s economic resurgence in recent years and is expected to continue to do so.

It is important for the police to arrest and charge those involved in fraud. Banks also need to tighten up their internal procedures so that employees will think twice before attempting to steal. Public trust in the banking system must be maintained at all cost but we should not start stashing our money under the mattress.