image copyrightGetty/BBC
The collapse of Ueno Bank triggered a political crisis in Paraguay that ended with the dismissal of President Santiago Peña. But the consequences go far beyond the fall of a government.
The economic impact of the bankruptcy of an entity that was presented as the great success of the Paraguayan financial system is already beginning to become evident.
This week, Fitch Ratings withdrew the positive outlook it maintained on Paraguay, amid the banking crisis caused by the resolution of Ueno Bank, the political storm and the deterioration of the country's fiscal accounts.
The decision represents a serious blow to the financial credibility of the South American nation. However, it is not a surprise.
In just three years, Ueno Bank went from being a small financial institution to becoming the bank with the most clients in Paraguay and one of the main players in its financial system.
For some, that success seemed too good to be true. As the bank grew, so did suspicions that something was wrong.
It had almost three million clients in a country of 6.5 million inhabitants and accumulated some US$2.8 billion in deposits, of which around US$855 million corresponded to public money.
It also claimed to process more than three million transactions a day.
End of Most read
All the news you need is on BBC World Service
Download it here
End of Ad app
Behind this dizzying expansion was a much more complex business and financial structure, which is now at the center of a judicial investigation.
The reports from the Central Bank of Paraguay (BCP) and the Prosecutor's Office describe a system in which Ueno lent large amounts of money to companies owned by the same owners of the bank.
That money moved between different companies in the group and some used it to repay the loans they had received.
The bank's money circulated between companies that were related, which served to make it appear that the loans were being paid.
"According to the BCP report, loans to companies in the same group were granted only with the signature of the applicant, without real guarantees or with insufficient guarantees. They had terms of up to ten years and their amounts greatly exceeded the payment capacity of the companies that received them," explains Orkun Saka, professor and researcher of financial economics at City St George's, University of London.
"A key element is that the bank had asked the regulator [the Central Bank] to stop considering several of these companies as related parties and continued to give them loans without formal authorization. In this way, it circumvented the legal limits that restrict loans to companies in its own group," he continued.
Ueno Bank began operations in December 2023, after the BCP, then chaired by Carlos Carvallo Spalding, who had just been appointed by President Peña, authorized the conversion of Financiera Ueno into a bank.
One of the main leaps in its expansion came a few months later. In 2024, Ueno absorbed Visión Banco, an entity with close to a million clients and three decades of experience in the Paraguayan market. This operation was also approved by the Central Bank.
The absorption allowed Ueno to add a large customer base, as well as assets, deposits and an extensive branch network.
Thus, the bank began to have nearly two million clients. Its growth continued during the following years.
image copyrightGetty Images
The bank's growth was driven by an aggressive commercial strategy, based on promotions, discounts and benefits, in addition to strong advertising investment, all with the aim of attracting customers.
Among the benefits it offered were refunds of up to 40% on purchases made with credit cards in certain stores, as well as discounts and promotions agreed with companies in different sectors.
In August 2023, Ueno became the main sponsor of the Paraguayan football team and some official competitions of the Paraguayan Football Association.
These initiatives gave the bank enormous visibility and made it one of the biggest brands in the country. But they also raised questions about how sustainable it was.
Its growth was also linked to transfers of public money. Ueno became one of the main recipients of deposits from the Paraguayan State.
According to data cited in the Prosecutor's indictment, as of August 31, 2025, Ueno was the main recipient of public deposits in dollars, with 24.5% of the total, and the second in guaraníes, with 18.7%.
According to spreadsheets from the Ministry of Economy and Finance cited by the Paraguayan newspaper ABC Color, at the end of September 2026 Ueno had deposits from the public sector and the pension system for an equivalent of about US$855 million.
Among these resources were those of the Social Security Institute (IPS), responsible for managing retirements and part of the health coverage of Paraguayan workers.
The Prosecutor's Office also maintains that the bank attempted to remove problematic loans from its balance sheets through an alleged "sale" to another company, which in turn had received indirect financing from Ueno. Problematic credits did not disappear: they simply changed form, explains Orkun Saka.
Ties with the government
Ueno's expansion was also accompanied by ties to government figures.
Santiago Peña had been a shareholder in Ueno Holding, a company linked to the business conglomerate that owns the bank, before selling his stake in March 2025.
The president has defended himself by claiming that he was never a direct shareholder of Ueno Bank.
Another relevant link was that of Carlos Carvallo Spalding, who had presided over Financiera Ueno before being appointed president of the Central Bank of Paraguay (BCP) in September 2023. He was appointed by the same Peña government.
Shortly after Carvallo's appointment, the BCP approved the transformation of Ueno into a bank.
These links were questioned by the opposition, which accused Peña of possible conflicts of interest.
Paraguay had achieved investment grade and maintained a positive outlook from Fitch, indicating that its credit rating could improve in the future.
With the withdrawal of that positive outlook, the country could face higher interest rates when borrowing in international markets, as investors could perceive greater risk and demand a higher return for lending money to Paraguay.
This would make access to credit more expensive and reduce the State's margin to finance other expenses.
But Orkun Saka, professor and researcher of financial economics at City St George's, University of London, warns that the crisis may leave a deeper mark on the Paraguayan economy: the loss of confidence in its institutions.
He believes that the proximity between the bank, the regulatory body and the presidency raises questions about the institutions' ability to supervise and control each other.
In recent years, Paraguay had managed to attract a considerable number of international investments.
Therefore, the loss of trust can be one of the most lasting consequences of a crisis of this type.
Discover more
Video
End of Video
