Paraguay's central bank and its president face mounting calls to resign as scrutiny intensifies over how they supervised a fast-growing digital bank with political ties.

Senators from the ruling party and the opposition have urged President Santiago Peña to remove the central bank's top leadership, despite it being credited with helping Paraguay secure investment-grade status.

The case is testing the reputation that has helped Paraguay become one of South America's emerging destinations for foreign capital, much of it from neighboring Brazil.

In recent weeks, authorities have repeatedly tried to calm financial markets after it emerged that ueno bank faced regulatory scrutiny of its business and an administrative investigation. The bank uses lower case in company statements.

In written statements to Reuters, Paraguay's central bank defended its governance structure, saying regulatory and supervisory processes operate independently and in accordance with established legal procedures.

Ueno said it would continue to "fully cooperate" with the central bank and maintained that the preliminary administrative proceeding did not constitute a finding of wrongdoing.

Ueno has scaled rapidly from a niche local fintech player to a mid-tier bank, in line with digital platforms like Monzo and Nubank. It says it has 3 million customers and manages roughly $800 million to $850 million in public funds.

Details of the preliminary probe appeared in a central bank report sent to the Senate this month. The report aimed to dispel doubts about loans issued by ueno to related companies, but it ended up fueling more questions from lawmakers, the banking association and other business groups.

"The replacement of the Central Bank authorities must take place," ruling-party Senator Gustavo Leite said in an interview with Reuters. "The people at the Central Bank have lost credibility." Opposition Senator Rafael Filizzola said the financial system was "suffering" and filed another request for information on ueno, which experienced a major selloff of its global bonds. Fitch Ratings changed the outlook on the company's securities from stable to negative last week.

Paraguay's Banking Association, which represents 14 private lenders including Brazil's Itau [RIC:RIC:ITUPU.UL], published a statement on October 18 reiterating that the central bank's response to the senate was "incomplete." The case is politically sensitive. Paraguay's central bank president, Carlos Carvallo, previously worked at ueno and served as its president until August 2023, the company confirmed in a statement to Reuters. Peña, a former economist, was a business partner of the group that owned the bank until March 2025. Ueno said Peña never had a relationship with the bank itself as a shareholder or investor.

Much of the pressure for answers has come from lawmakers of the ruling Colorado Party, amid an internal dispute over the party's presidential nomination for the 2028 general elections.

In a written response to Reuters, the central bank said there was no conflict of interest, saying Carvallo had "recused himself" from all decisions related to ueno bank. Paraguay’s presidency did not respond to a request for comment.

In remarks to local media in early October, Peña described the situation as an "overflow" of a technical matter that was taken into the political arena and had done "tremendous damage to the image of the entire country." The ueno case has put a spotlight on stability in Paraguay's grain-exporting economy that won investment-grade credit ratings from Moody's in 2024 and S&P Global last year.

The IMF expects growth of 4.5% this year, almost double the regional average.