Paraguay’s President Santiago Pena is facing impeachment following the collapse of Ueno Bank, a major digital bank, which has plunged the South American country into its deepest political crisis in more than a decade.

Pena announced his resignation on Thursday, but politicians formally filed impeachment charges against the president. Pena, a former International Monetary Fund (IMF) economist, then requested a 72-hour extension to present his defence at an impeachment hearing, because he had been given less than 12 hours to answer “an accusatory writ and about 300 pages of attachments”, adding: “That is not due process.”

However, the Senate convened a rare session on Friday to consider Pena’s political future, opting to move forward with efforts to remove him from office.

Until March 2025, Pena held a stake in Grupo Vazquez, the parent company that owns Ueno Bank.

What is Ueno Bank?

Ueno Bank was established in 1976 and remained a small financial operation for decades.

After being granted a full banking licence in 2023, it rebranded and grew to become a household name in Paraguay within five years. Customers were incentivised with cashback offers on groceries and it built a network of more than 70 branches. The bank sponsored Paraguay’s national football team and its name was plastered across the country’s main stadium.

Ueno bank reported that it had 3 million customers, roughly 60 percent of Paraguay’s adult population.

The digital bank managed $800m of public funds, including about $380m 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 decided to put Ueno bank into resolution – the strongest action it can take short of placing the bank into liquidation – after finding that its solvency ratio, a measure of its capital against its risk-weighted assets, had dropped to less than half of the legal requirement.

Resolution allows regulators to transfer a failing bank’s deposits to other institutions before liquidating remaining assets.

Customer accounts were frozen, leaving millions of depositors, retirees and workers scrambling to recoup their savings and unpaid wages.

Ueno Bank’s nearly 3 million customers still cannot withdraw cash, make digital payments or use their bank cards.

“Santiago Pena and the Colorado Party have stolen all our savings,” said Luis Pineda, one of the protesters marching to Congress on Wednesday. “We are fed up with 70 years of plunder,” he added, an apparent reference to the right-wing Colorado Party which has ruled Paraguay almost uninterrupted for more than seven decades.

What caused the Ueno Bank collapse?

Regulators at Paraguay’s central bank found a pattern of risky lending to “insiders”, reported ABC Color, a leading Paraguayan newspaper. This means that executives or major investors of a bank have approved questionable, low-security loans for themselves, their families or their own businesses. In this case, Ueno had loaned $146m to companies tied to its owner, Grupo Vasquez, which has links to Paraguay’s president.

Investigators found loaned amounts went beyond legal limits and were not backed up by enough collateral to cover the debts if they went bad.

Central Bank regulators found Ueno’s loans to companies linked to its owners were poorly documented while the bank had wrongly counted some expenses as assets.

Once the books were corrected, Ueno’s capital, the cushion banks must keep to absorb losses, was revealed to be less than half the legal minimum.

How is President Pena involved?

Protesters blame President Pena personally for the crisis because of his ties to the failed bank. Until recently, he held a financial stake in Ueno Bank’s parent holding company. After taking office in 2023, Pena appointed the former head of Ueno’s predecessor company, Carlos Carvallo, to head the country’s central bank, giving an insider the role of overseeing the institution. Carvallo has resigned from his position.

Pena denies any improper ties to the bank.

Protesters also say they are unhappy that so much public pension money was invested with the bank under Pena despite warnings about its high-risk insider lending practices.

What happens to people with savings in the bank now?

Paraguay’s Congress rushed through a law on Wednesday, providing a state-guaranteed fund for repaying depositors within five business days, starting on Thursday with small accounts holding up to $1,600.

The fund insures up to about $36,000 per customer, which the central bank says will cover the full balances of an estimated 97 percent of customers.

What other action is being taken?

Paraguay’s Public Prosector’s office has ordered multiple criminal investigations. On Thursday, a judge ordered six Ueno executives, including founder Miguel Vazquez and bank President Juan Manuel Gustale, to be detained pending trial, while two others were placed under house arrest. In all, prosecutors have charged 27 bank officials and associates with breach of trust and attempted fraud.

Paraguay’s President Santiago Pena has tried to step down and wants Congress to approve his resignation. However, opposition politicians want him to be formally removed from office rather than merely allowing him to resign. They argue that allowing Pena to step down would preserve his eligibility to become a senator for life and shield him from possible prosecution.

Paraguay’s Attorney General Emiliano Rolon Fernandez has ordered three criminal investigations into the Ueno Bank crisis, including allegations involving Pena and other current and former government officials, the prosecutor’s office said on Thursday.

The investigations will examine authorities’ oversight of the bank, their handling of its failure and the placement of public funds in the lender.

Is this the first banking crisis in Paraguay?

No. Paraguay has a long history of bank failures and went through a prolonged banking crisis from the mid-1990s to the early 2000s.

In 1995, the central bank was forced to close Bancopar, which had severe liquidity problems and had also practised insider lending to companies linked to the bank’s owners. Three more banks also failed because of risky practices and poor oversight. The government was forced to cover the deposits of customers of all four banks, causing lasting damage to public confidence in Paraguay’s banking system.

Other banks including Banco General, and Banco Aleman were closed in this era. Banco Union and the state-linked Banco Nacional de Trabajadores and Banco Plus also failed.

Have there been other bank collapses?

Banco Espirito Santo in Portugal collapsed in 2014 with losses of $4.8bn when it was revealed that the family-controlled banking group had hidden losses. The Bank of Portugal had to split and rescue what was the country’s second largest private bank. That happened as Portugal was recovering from a deep recession, austerity cuts and bail-out obligations to the International Monetary Fund (IMF), the European Central Bank (ECB) and the European Commission.

In 2008, the three major commercial banks in Iceland – Glitnir, Kaupthing and Landsbanki – all collapsed within days following the bankruptcy of Lehman Brothers. The three banks were heavily exposed because they had borrowed from foreign capital markets far too aggressively. Iceland did not shore up the banks, instead seeking help from the IMF and launching criminal investigations.

The collapse of Lehman Brothers triggered banking crises in other countries, including the United Kingdom, but banks there were mostly propped up or rescued by governments.

Fraud and insider lending caused the collapse of Banco Intercontinental Baninter in the Dominican Republic in 2003 with losses of $2.2bn.

And in 1991, Bank of Credit and Commerce International, a globally active bank, collapsed with losses of $10bn. Extensive fraud, hidden bad loans, and illicit operations masked the true scale of the deficit until the intervention of regulators. It was shut it down simultaneously in more than 70 countries.