Good monitoring in Indonesia's banking sector is a must in order to avert possible cases of fraud or corruption. Indonesia currently ranks 107th (out of 175 countries) in Transparency International's annual Corruption Perceptions Index. Although this index is based on perceived corruption (and mainly involves political corruption) it is still an important index as people usually have a good sense of what is going on around them. The weak ranking of Indonesia in the index implies that there is a high degree of corruption going on in the country.

In Indonesian history - and also in the recent past (see below) - there have been various scandals in the banking industry. Such a scandal can have big consequences as most banks are involved in a variety of businesses such as securities, insurance and provide credit to many other companies and individuals. Moreover, with each scandal the industry or sector receives a blow, making (potential) investors worried. One prerequisite to combat fraud in the banking sector is to have enough manpower within the agency that is tasked to monitor this sector.

Per 31 December 2013 the central bank of Indonesia (Bank Indonesia) officially transferred its authority to regulate and supervise the banking sector of Indonesia to the Financial Services Authority (in Indonesian: Otoritas Jasa Keuangan, abbreviated OJK). Part of this deal was that over 1,000 Bank Indonesia employees were transferred (temporarily) to the OJK in order to safeguard a smooth transition and the continuation of tasks. It was agreed that after a period of three years each employee could choose whether to stay at the OJK or return to Bank Indonesia. According to local newspaper Kontan around 31 percent of the central bank workers that were transferred to the OJK want to return to Bank Indonesia. This would mean, the OJK is to lose nearly 350 employees at the start of 2017.

Reportedly, a large portion of the OJK employees that want to return to the central bank are those involved in the monitoring of Indonesia's banking sector. Nelson Tampubolon, Commissioner for Banking Supervision at the OJK, said the regulator will immediately start the process to recruit new staff-members in order to avoid a shortage of people hence safeguarding the quality of monitoring of the nation's banking system.

Tampubolon added the OJK will actually need to recruit more than 350 new people as it not only has to cover for those that return to the central bank but also have to add people because Indonesia's banking sector has been expanding rapidly over the past years and therefore the OJK needs more people to monitor the sector.

In recent years a number of scandals occurred in Indonesia's banking sector:

Bank Century Scandal

In 2008 the central government of Indonesia provided a USD $573 million bailout package for Bank Century as this bank was allegedly on the brink of collapse amid the financial crisis. According to the government, bankruptcy of Bank Century could lead to a domino effect in the banking sector. In mid-2014 Budi Mulya, former Deputy Governor of Bank Indonesia was sentenced to ten years imprisonment being found guilty of self-enrichment, power abuse, and corruption in relation to the government's bailout package. Mulya had accepted an IDR 1 billion bribe from former Bank Century owner Robert Tantular in exchange for handing the short-term loan facility to Bank Century. Tantular was sentenced to five years in prison in 2009 having been found guilty of issuing USD $200 million in fraudulent loans as well as misusing depositors' funds (in 2010 this sentence was raised to nine years by Indonesia's Supreme Court).

After the bailout Bank Century changed its name to Bank Mutiara and was run by the government's Deposit Insurance Agency (LPS). In 2014 Japan-based J Trust Co. was allowed to purchase a 99 percent stake in Bank Mutiara. Generally, foreign ownership of Indonesian banks is limited to 40 percent. However, Indonesian authorities made an exception for the acquisition of Bank Mutiara as this bank was regarded a "distressed bank". After the acquisition it changed its name to Bank J Trust Indonesia.

Bank Syariah Mandiri Scandal

In 2013, a branch of Bank Syariah Mandiri - subsidiary of state controlled Bank Mandiri - in Bogor (West Java) approved a total of IDR 102 billion in loans for 197 fictitious clients. Several of officials working at the bank were arrested on grounds of self-enrichment through the scam. This scandal cost Bank Syariah Mandiri around IDR 59 billion (USD $4.3 million).

Citibank Indonesia Scandal

Malinda Dee, former Senior Relationship Manager at Citibank Indonesia, allegedly embezzled over IDR 40 billion (approx. USD $3 million) from Citibank Indonesia's premium customers and laundered these funds through purchases of cars and cosmetic surgery as well as through an investment company. The bank discovered the fraud and reported Dee to authorities.

Bank Mega Scandal

In 2011 Elnusa, a listed oil & gas company, discovered IDR 111 billion (approx. USD $8 million) of its funds stored at Bank Mega (in time deposits) had been stolen. This scam involved staff-members of both Elnusa and Bank Mega.

CIMB Niaga Scandal

In 2014 Bank CIMB Niaga's branch in Pangkal Pinang (on the island of Bangka) became victim of a scam as a staff-member at the Information Technology department of the bank's headquarters tried to embezzle IDR 22.9 billion of the bank's funds.