Paraguay seizes major digital bank tied to president, leaving millions of customers in limbo

ASUNCIÓN, Paraguay (AP) — Paraguay’s central bank seized a major digital lender with close ties to President Santiago Peña on Tuesday, fueling a political crisis and threatening the country’s burgeoning reputation as a regional haven for investors. The takeover left millions of customers’ savings and hundreds of millions of dollars in public funds in limbo.

The central bank’s board voted unanimously late Monday to put Ueno Bank into resolution and hand its management to officials charged with assessing its finances and protecting its assets, the regulator said Tuesday. The move came after Ueno’s solvency ratio, a measure of its capital against its risk-weighted assets, fell below half the legal minimum. Resolution allows regulators to transfer a failing bank’s deposits to other institutions before liquidating its remaining assets.

The bank says it has about 3 million customers, equivalent to roughly 60% of the adult population of the South American country, and manages $800 million to $850 million in public money. That includes about $380 million invested by Paraguay’s state pension and health fund.

Prosecutors ordered the arrest of eight people, including Ueno President Juan Manuel Gustale and chief executive Federico Miguel Vázquez Villasanti, as part of an investigation into suspected breach of trust and other offenses. By Tuesday afternoon, another two bank directors had been taken into custody, prosecutors said.

Peña, who canceled a planned trip to an international summit in Spain late Monday, said that he had asked central bank chief Carlos Carvallo to resign and had agreed with congressional leaders to fast-track legislation expediting payouts to depositors and guaranteeing the return of public money. He vowed to hold whoever was behind the collapse accountable.

“Those responsible will have to answer to the courts, without exceptions or privileges,” he wrote on social media.

Carvallo, who led Ueno’s predecessor before Peña appointed him, said he had already signed his resignation but would stay on to oversee the takeover because “the central bank needs calm to do its job.”

Customers worry about their savings

Locked out of their accounts on the bank’s app, panicked customers gathered outside shuttered branches across the country demanding answers about their savings, as police stood guard.

Activists called for an evening rally outside Congress to demand Peña’s impeachment and an investigation into the bank’s collapse, while an association of pensioners planned a protest outside Peña’s official residence.

“This really tarnishes the country’s name,” said depositor Víctor González, who came to the bank’s headquarters to ask about his savings, only to be told by police that he and others couldn’t even stand outside.

“Apparently, these criminals are protecting the malicious people who caused this financial collapse,” he added, referring to the officers.

Customers could not withdraw or transfer money Tuesday, though most are protected by deposit insurance. A central bank fund guarantees up to 228.3 million Paraguayan guaraníes ($38,000) per person, enough to fully cover about 97% of Ueno’s depositors, according to preliminary estimates. By law, that money must be paid within 15 days of the takeover, a deadline that can be extended once.

As a first step, the central bank said depositors would soon receive up to 10 million guaraníes ($1,700), minus any debts they owe Ueno, though it gave no date.

Those with larger balances face more uncertainty. The central bank stopped short of promising them full repayment, saying only that it would seek “the greatest possible protection.”

The state pension fund said pensions would be paid as usual and that it was moving the roughly 32,000 retirees who collect their pensions through Ueno to another bank. It also plans legal action to recover its investment.

A bank under suspicion from the start

Fast-growing Paraguay has courted foreign investors with low taxes, light regulation and a record of economic stability, recently winning its first investment-grade credit ratings, a milestone in Peña’s campaign to turn the landlocked nation into a manufacturing hub.

But Ueno’s collapse revives long-standing concerns about weak institutions. Paraguay ranked 150th of 182 countries and territories in Transparency International’s 2025 Corruption Perceptions Index, tied with Bangladesh and the Central African Republic.

Peña’s own ties to Ueno have fueled some of those concerns since he took office in 2023. Soon after his inauguration, he named Carvallo to run the central bank. Critics called the appointment a conflict of interest, though the regulator has said Carvallo recused himself from decisions involving Ueno.

Peña remained a business partner of Grupo Vázquez, the conglomerate that owns Ueno, until March 2025. He repeatedly dismissed concerns about its finances, accusing the media of fearmongering. Meanwhile, government agencies and state funds poured money into Ueno. The bank said last month that public money accounted for about a quarter of its deposits.

Less than a week ago, Ueno announced plans to raise $100 million in fresh capital, half from its holding company and half from shares to be sold to local private investors. Fitch Ratings changed its outlook on the bank to negative last month, citing rapid growth in its balance sheet and a high level of intangible assets.

The central bank said it warned Ueno in June that it was lending too much money to companies tied to its owners. Banks face strict limits on such loans because they let owners funnel customers’ savings into their own businesses.

“There was a great deal of flexibility in financial and banking rules that allowed this institution to expand very rapidly,” said Luis Rojas, a Paraguayan economist. “There was preferential treatment, which raised a lot of suspicions.”