The collapse of Paraguay's Ueno Bank – pronounced like the Kinder Bueno chocolate bar - has provided another stark reminder of how quickly confidence in a financial institution can unravel, and why effective credit risk management requires more than just reviewing headline financial indicators.
On 2 November 2026, the Central Bank of Paraguay initiated resolution proceedings against Ueno Bank after identifying a substantial deterioration in its financial position. Adjustments to the bank's financial statements revealed that its solvency ratio had fallen to below half the regulatory minimum, prompting authorities to intervene. Rather like the chocolate bar, it looked tasty from the outside, but its internal structure turned out to be wafer thin.
The collapse was particularly significant given Ueno Bank's rapid expansion. Having established itself as a major digital banking provider, the institution had accumulated almost three million customers, with 60% of the country’s adults holding an account. The bank’s Fitch and S&P credit ratings were only a notch or two below those of the government until the day of the collapse, citing its stable funding, expansive retail footprint, and status as a systemically important bank.
Reports also suggest that the bank held around $800 million to $850 million in deposits from Paraguayan public sector organisations, including money associated with state pensions and healthcare. The collapse has consequently raised serious questions about the management and oversight of public money.
What went wrong?
Ueno Bank's failure has highlighted concerns over connected-party lending, weaknesses in financial reporting and the classification of certain expenses as assets.
These issues are particularly important from a credit risk perspective. A bank can report apparently satisfactory capital ratios, profitability and liquidity while underlying weaknesses remain concealed by accounting practices, asset valuations or governance deficiencies.
It also points to an underlying issue with rapid growth - expansion in customer numbers, deposits and lending does not necessarily indicate improving creditworthiness. Indeed, rapid growth can introduce additional risks where lending standards, internal controls and governance arrangements fail to keep pace.
Lessons for UK treasury investors
South American banks are beyond the risk appetite of most UK institutional investors, but the underlying lessons are highly relevant to organisations managing substantial cash balances. The key learning point is that creditworthiness cannot be properly assessed through credit ratings alone.
Credit ratings remain an important component of counterparty assessment, but they should form part of a broader evaluation incorporating capital adequacy, asset quality, liquidity, profitability, governance and the wider operating environment.
Ongoing monitoring is equally important. Financial institutions can experience rapid deterioration, and investment decisions based solely on historic financial statements or periodically updated credit ratings will not capture emerging concerns sufficiently quickly. Monitoring of market measures, including credit default swaps, share prices and bond spreads, is therefore key to understanding the probability of default.
Working out your loss given default involves a review of the balance sheet, to ascertain your position in the creditor waterfall in the event of insolvency or bail-in.
The importance of independent credit advice
At Arlingclose, our approach to credit advice recognises that managing counterparty risk requires more than relying on external credit ratings. Our credit analysis draws upon a range of quantitative and qualitative information, including financial performance, market indicators, institutional developments and relevant regulatory information. This supports the ongoing assessment of counterparties and the identification of changes that could affect their suitability for investment.
We also consider how individual counterparty exposures fit within an organisation's wider investment strategy, including diversification, investment limits and liquidity requirements. What is suitable for one investor doesn’t work for everyone.
While no credit assessment can eliminate the possibility of a financial institution failing, robust due diligence, independent scrutiny and continuous monitoring can help investors make informed decisions about who to entrust their organisation’s cash to. Specific investment advice on setting appropriate counterparty limits and selecting the right investment instruments will then help limit or avoid potential losses should the worst occur.
Get in touch with the Arlingclose team at info@arlingclose.com to learn how we can help you manage your credit risk exposures.
