Paraguay: Collapse of largest bank by customer base topples President Peña

Event

In the first week of November, the central bank of Paraguay (BCP) seized control of Ueno Bank, Paraguay’s largest bank by number of customers, and began its dissolution. The fallout was swift and took an unexpected political turn: the presidency of Santiago Peña unravelled within 72 hours. Peña was replaced by his Vice President Pedro Alliana, who is expected to serve as president until the end of the presidential term in August 2028.

Impact

Ueno Bank’s collapse followed the discovery that its solvency ratio had fallen below half the required minimum. Investigators also uncovered Ueno’s irregular lending to entities related to its own parent company and to related companies linked to managers and employees, the findings are now under criminal investigation. The collapse also exposed a political dimension. Former President Santiago Peña held shares in Ueno’s parent company until March 2025. In 2023, he appointed Carlos Carvallo, former chairman of Financiera Ueno, the financial institution that preceded Ueno Bank, to head the BCP. Financiera Ueno, then a fintech, secured a banking licence from the BCP less than three months after Peña appointed Carvallo. During the Peña administration, public-sector institutions also substantially increased their deposits with Ueno Bank. Following the collapse, both Peña and Carvallo were charged with crimes connected to the case. After Congress failed to accept President Peña’s resignation, the Senate voted unanimously to impeach and remove him from office. Carvallo also resigned in the aftermath of the collapse of Ueno Bank.

The bank’s collapse may revive memories of Paraguay’s banking crises between 1995 and 2003. The handling of the resolution and transparency surrounding the case will be important, as problems at one institution could trigger withdrawals from otherwise sound banks. So far, however, there is no evidence that another major bank is insolvent or engaged in similarly aggressive related-party lending, nor is there evidence that confidence in the broader banking sector has deteriorated.

Paraguay’s banking sector entered this crisis from a position of strength. Indeed, the 1995-2003 banking crises prompted major reforms. The IMF reported in September 2026 that the sector remained well capitalised, liquid and profitable. Moreover, deposit protection provides an additional buffer, fully covering 97% of Ueno’s private depositors. Large corporate depositors could nevertheless face losses. Public-sector deposits, accounting for almost a quarter of Ueno Bank’s total deposits and around 1% of GDP, could entail a fiscal cost, depending on whether they receive preferred creditor status and on the amounts recovered. Nevertheless, sovereign default risk remains low as Paraguay’s moderate public debt, estimated at about 37% of GDP at the end of 2026, and low interest payments provide room to absorb potential losses. 
    
In this context, the MLT and ST political risk classifications have a stable outlook for now. The incoming administration under President Pedro Alliana is expected to maintain broadly orthodox and market-friendly policies. Paraguay’s political risk ratings are supported by manageable external debt ratios, healthy public finances and the country’s position as a net fuel exporter, thanks to hydropower. Foreign exchange reserves provide an important additional buffer. Governance indicators remain a persistent weakness, as illustrated by the fall of the president and the central bank governor in the wake of the bank’s collapse. Corruption has long been a structural vulnerability: international governance indicators consistently place Paraguay below both global and Latin American averages in terms of control of corruption.

Analyst: Jolyn Debuysscher – J.Debuysscher@credendo.com