Paraguay Seizes Digital Bank Tied to President, Stranding Millions of Depositors

Paraguay’s central bank moved abruptly to take control of Ueno Bank on Tuesday, a digital lender deeply connected to President Santiago Peña. The seizure places the savings of approximately 3 million customers, which represents about 60 percent of the nation's adult population, under state management. The bank also held between $800 million and $850 million in public funds.

The board of the Central Bank of Paraguay voted unanimously on Monday to place Ueno into resolution. This regulatory process differs from a standard court bankruptcy. It allows authorities to transfer deposits to healthier institutions before selling off the failing bank's remaining assets to repay creditors. The decision followed a finding that Ueno's solvency ratio dropped below half of the required legal minimum.

The intervention lands in the middle of a political controversy that has followed Peña since he took office in 2023. Shortly after his inauguration, he appointed Carlos Carvallo, then the chief of Ueno, to lead the central bank. Critics at the time pointed to a conflict of interest. Peña maintained a business partnership with Grupo Vázquez, the conglomerate that owns Ueno, until March 2025. Ueno maintains that Peña was never a direct shareholder or investor in the bank itself.

Both the president and the bank deny any wrongdoing. The central bank states that Carvallo has recused himself from decisions involving Ueno. In a statement on Tuesday, Carvallo told reporters that regulators initially flagged concerns over Ueno's loans to companies linked to its owners. Banks face strict limits on such lending to prevent owners from steering customer funds into their own businesses.

Carvallo said a deeper inspection revealed more serious irregularities that the central bank intends to report to authorities. He also cited recent news reports as a factor that further weakened the lender. The central bank emphasized that the issues were confined to Ueno and insisted the situation does not affect the wider financial system.

The regulator will now appoint officials to replace the current management. These officials will assess the bank's value and protect its assets. The central bank also plans to investigate who was responsible for the financial deterioration and to impose sanctions. Each depositor is guaranteed up to 228 million Paraguayan guaraníes, equivalent to about $38,000, from a central bank fund.

Under Paraguayan banking law, that guaranteed amount must be paid within 15 days. This deadline can be extended once for an additional 15 days. The central bank stopped short of promising full repayment to those with larger balances. It said only that it would seek the greatest possible protection for them.

Gladys Vera, the finance manager for the state pension and health fund, known as IPS, provided details on the impact for public retirees. The IPS has about $380 million invested in Ueno. Vera told local media that retirees will be paid as usual this month because the cash for monthly payments is held at a different bank.

Vera stated the fund will take legal action to try to recover its investment. The agency will also find another bank to serve the 32,000 retirees who currently collect their pensions through Ueno. Whether depositors recover money above the guarantee will depend on the outcome of the resolution process and any subsequent liquidation.

The central bank said its primary goal is to wind down Ueno while protecting customers’ savings and preventing disruption to other banks. The seizure marks a dramatic turn in a scandal that has shadowed Peña since he took office in 2023. The board's unanimous vote on Monday set the stage for the immediate takeover announced early Tuesday.