A leading Indonesian politician has said that fake letters of credit (L/Cs) are behind a substantial number of cases of theft by insiders at Indonesia's banks.

The allegations come as a leading ratings agency warns that the country's banking sector remains in need of significant structural reform.

Internal controls

Indonesian MP Dradjad Wibowo said last week that stricter internal control mechanisms within each financial institution were necessary since most bank frauds in Indonesia involved embezzlement.

Dradjad, who is an economist by background, added that scams involving banks were mostly in the form of fake L/Cs, lending limit violations and fake bonds.

Fitch warning

Fitch, the ratings agency, said in a 18 July warning that Indonesia's banking sector remained in need of significant structural reform as its progress still largely depended on the success of the government-led fight against corruption.

The caution follows significant interest in recent years in Indonesia's financial sector from foreign investors eager to buy into banks recapitalised after the Asian financial crisis and establish a market position in a growing economy.

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