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 early Tuesday, throwing the savings of millions of customers and hundreds of millions of dollars in public funds into limbo.

The central bank’s board voted unanimously Monday to put Ueno Bank into resolution after its solvency ratio — a measure of a bank’s capital against its risk-weighted assets — fell below half the legal minimum, the regulator said.

Later Tuesday, central bank President Carlos Carvallo, who ran the lender before Peña appointed him to the post, said he had signed his resignation letter but would stay on for now to oversee the takeover. “The central bank needs calm to do its job,” he said.

Unlike bankruptcy proceedings in court, resolution allows regulators to transfer a failing bank’s deposits to more stable banks before its remaining assets are liquidated to repay creditors.

Ueno 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, known as IPS, according to the fund.

Customers said they were locked out of their accounts on the bank’s app. Police stood guard outside branches in what officials described as a precaution against unrest.

The intervention marks a dramatic turn in a scandal that has shadowed Peña since he took office in 2023. Soon after his inauguration, he named Carvallo to lead the central bank, a move critics denounced as a conflict of interest. The central bank 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, though the bank says he was never a shareholder or investor. He repeatedly brushed off concerns about the bank’s finances, accusing the media of stoking public fear.

Meanwhile, government agencies and state funds poured money into Ueno, the leading Paraguayan newspaper ABC Color has reported, citing Finance Ministry records. Last month, Ueno’s president, Juan Manuel Gustale, said public money accounted for about a quarter of the bank’s deposits.

Peña’s office announced Monday that he had canceled a planned trip to an international summit in Spain, vaguely citing priorities at home.

The fallout has spread to his long-dominant conservative Colorado Party. Paraguay’s presidents are limited to a single term, and Peña’s Vice President Pedro Alliana had been seeking the party’s nomination for the 2028 election. On Monday, Alliana said he was putting his bid on hold, citing the “financial crisis” surrounding Ueno.

“If we don’t get our house in order, there’s no presidential project,” he told local radio.

The central bank said the intervention would allow it to wind down Ueno while protecting customers’ savings and preventing disruption to other banks. It insisted the problems were confined to Ueno, saying the situation “does not affect the financial system as a whole.”

Carvallo told reporters that regulators first raised concerns about Ueno’s loans to companies tied to its owners. Banks face strict limits on such lending because it allows owners to steer customers’ money into their own businesses.

A deeper inspection uncovered more serious irregularities, which the central bank plans to report to the authorities, he said. He also blamed recent news reports about the bank’s troubles for accelerating its collapse.

The central bank said it would appoint officials to take over the bank from its management, determine what it is worth and protect its assets. It also plans to investigate who was responsible for the bank’s decline and impose sanctions.

Each depositor is guaranteed up to 228 million Paraguayan guaraníes, or about $38,000, from a central bank fund, the regulator said. Under Paraguay’s banking law, that money must be paid within 15 days, a deadline that can be extended once by another 15.

About 97% of Ueno’s depositors have balances fully covered by the guarantee, according to preliminary estimates cited by central bank board member Marco Aurelio González. For amounts above that limit, the central bank stopped short of promising full repayment, saying only that it would seek “the greatest possible protection.”

Whether those depositors recover money above the guarantee will depend on the outcome of the resolution process and a possible liquidation, said Gladys Vera, the state pension fund’s finance manager.

Vera told local media that retirees would be paid as usual this month because the money for monthly payments is held at another bank. She said the fund would take legal action to try to recover its investment and would find another bank for the 32,000 retirees who collect their pensions through Ueno.

DeBre reported from Buenos Aires, Argentina.