Paraguay Plunged into Crisis: President Faces Impeachment Amidst Ueno Bank Collapse

Paraguay's President Santiago Pena is confronting impeachment proceedings following the dramatic collapse of Ueno Bank, a prominent digital bank, which has triggered the nation's most severe political crisis in over a decade. President Pena announced his resignation on Thursday, but politicians proceeded to file formal impeachment charges against him. Pena, who previously worked as an economist for the International Monetary Fund (IMF), requested a 72-hour extension to prepare his defense for an impeachment hearing, citing that he received less than 12 hours to respond to "an accusatory writ and about 300 pages of attachments," asserting that this did not constitute due process. Nevertheless, the Senate convened an extraordinary session on Friday to deliberate on Pena's political future, ultimately deciding to advance efforts for his removal from office. It is noteworthy that until March 2025, Pena held a financial stake in Grupo Vazquez, the parent company of Ueno Bank.

What is Ueno Bank?

Ueno Bank, established in 1976, operated as a modest financial institution for many years. After obtaining a full banking license in 2023, it underwent a rebranding and experienced rapid growth, becoming a widely recognized name in Paraguay within five years. The bank attracted customers through incentives like grocery cashback offers and established a network of over 70 branches. Ueno Bank was also a sponsor of Paraguay's national football team, and its name was prominently displayed at the country's main stadium. The bank reported serving 3 million customers, representing approximately 60 percent of Paraguay's adult population. Ueno Bank managed $800 million in public funds, including about $380 million invested by Paraguay's state pension and health fund, according to data from the Central Bank of Paraguay.

What has happened to the bank?

On Monday, Paraguay's central bank intervened by placing Ueno Bank into resolution, the most stringent measure short of liquidation, after determining that its solvency ratio—a measure of its capital against risk-weighted assets—had fallen below half of the legally required level. The resolution process enables regulators to transfer a failing bank's deposits to other institutions before liquidating its remaining assets. Customer accounts were frozen, leaving millions of depositors, retirees, and workers in a desperate situation to recover their savings and unpaid wages. Ueno Bank's nearly 3 million customers are currently unable to withdraw cash, conduct digital payments, or use their bank cards. Protesters have voiced their anger, with one individual stating, "Santiago Pena and the Colorado Party have stolen all our savings," and expressing frustration over "70 years of plunder," referencing the long-standing rule of the right-wing Colorado Party in Paraguay.

What caused the Ueno Bank collapse?

Regulators at Paraguay's central bank identified a pattern of risky lending to "insiders," as reported by ABC Color, a leading Paraguayan newspaper. This practice involves bank executives or major investors approving questionable, low-security loans for themselves, their families, or their associated businesses. In Ueno Bank's case, $146 million was loaned to companies linked to its owner, Grupo Vazquez, which has connections to Paraguay's president. Investigators discovered that these loan amounts exceeded legal limits and lacked sufficient collateral to cover potential debts. Central Bank regulators also found that Ueno's loans to companies connected to its owners were poorly documented, and the bank had improperly classified certain expenses as assets. Once the financial records were rectified, Ueno's capital—the buffer banks maintain to absorb losses—was found to be less than half of the legal minimum.

How is President Pena involved?

Protesters hold President Pena personally responsible for the crisis due to his past ties to the failed bank. Until recently, he possessed a financial stake in Ueno Bank's parent holding company. After assuming office in 2023, Pena appointed Carlos Carvallo, the former head of Ueno's predecessor company, to lead the country's central bank, thereby placing an insider in a supervisory role. Carvallo has since resigned. Pena denies any improper connections to the bank. Additionally, protesters expressed dissatisfaction that a significant amount of public pension funds was invested with Ueno Bank under Pena's administration, despite warnings regarding its high-risk insider lending practices.

What happens to people with savings in the bank now?

Paraguay's Congress swiftly passed legislation on Wednesday establishing a state-guaranteed fund to repay depositors within five business days, commencing on Thursday with smaller accounts up to $1,600. This fund provides insurance up to approximately $36,000 per customer, which the central bank estimates will cover the full balances of about 97 percent of customers.

What other action is being taken?

Paraguay's Public Prosecutor's Office has initiated multiple criminal investigations. On Thursday, a judge ordered the detention of six Ueno executives, including founder Miguel Vazquez and bank President Juan Manuel Gustale, pending trial, while two others were placed under house arrest. Prosecutors have charged a total of 27 bank officials and associates with breach of trust and attempted fraud. President Santiago Pena has attempted to resign, seeking congressional approval. However, opposition politicians are pushing for his formal removal from office rather than accepting his resignation, arguing that resignation would allow him to retain eligibility for a lifetime senate seat and potentially shield him from prosecution. Paraguay's Attorney General Emiliano Rolon Fernandez has ordered three criminal investigations into the Ueno Bank crisis, examining allegations involving Pena and other current and former government officials. These investigations will scrutinize the authorities' oversight of the bank, their management of its failure, and the placement of public funds with the lender.

Is this the first banking crisis in Paraguay?

No, Paraguay has a history of bank failures, experiencing a significant banking crisis from the mid-1990s to the early 2000s. In 1995, the central bank was compelled to close Bancopar due to severe liquidity issues and insider lending to companies associated with the bank's owners. Three additional banks failed during this period owing to risky practices and inadequate oversight. The government assumed responsibility for covering customer deposits for all four banks, resulting in lasting damage to public confidence in Paraguay's banking system. Other institutions like Banco General and Banco Aleman were also closed during this era, alongside Banco Union, the state-linked Banco Nacional de Trabajadores, and Banco Plus.

Have there been other bank collapses?

Internationally, Banco Espirito Santo in Portugal collapsed in 2014 with losses of $4.8 billion after it was revealed that the family-controlled banking group had concealed losses. The Bank of Portugal had to undertake a rescue operation, splitting the country's second-largest private bank. This occurred as Portugal was recovering from a severe recession, austerity measures, and bailout obligations to the IMF, the European Central Bank (ECB), and the European Commission. In 2008, Iceland's three major commercial banks—Glitnir, Kaupthing, and Landsbanki—failed within days following the bankruptcy of Lehman Brothers. These banks had excessively borrowed from foreign capital markets. Iceland did not bail out the banks but instead sought assistance from the IMF and launched criminal investigations. The collapse of Lehman Brothers precipitated banking crises in other countries, including the United Kingdom, where banks were largely supported or rescued by governments. Fraud and insider lending led to the collapse of Banco Intercontinental Baninter in the Dominican Republic in 2003, with losses amounting to $2.2 billion. In 1991, the globally active Bank of Credit and Commerce International collapsed with losses of $10 billion due to extensive fraud, hidden bad loans, and illicit operations that masked the true scale of the deficit until regulators intervened, leading to its simultaneous closure in over 70 countries.