Fitch puts Paraguay on negative watch

Fitch Ratings has placed Paraguay’s BB+ sovereign credit rating on negative watch, signaling the rating is on watch for a possible downgrade. The decision on Nov. 11, 2026, comes in response to the collapse of Ueno, Paraguay’s sixth-largest lender, and the wider banking and political turmoil that followed. The negative watch applies to Paraguay’s long-term foreign-currency debt and replaces the previous positive outlook.

Fitch cited potential spillovers from the Ueno failure to the broader banking system, government finances, economic growth and policy continuity. It highlighted downside risks to its existing forecast for 4.5% economic growth in 2026, reflecting uncertainty over how the shock will affect activity and fiscal balances. At the same time, Fitch indicated it does not currently anticipate wider financial stability risks, pointing to the sound solvency and liquidity positions of other systemically important banks.

Paraguay’s central bank placed Ueno into resolution on Nov. 2 after the lender’s capital fell below half the regulatory minimum. The move froze the savings of nearly 3 million customers in a country of 6.5 million people, underscoring the bank’s reach in the domestic financial system. Ueno, a digital-focused lender, is identified as the country’s sixth-largest bank.

As of June, Ueno held roughly $850 million in public funds, including state pension money, increasing the potential fiscal and social impact of the collapse. Regulators seized the bank earlier in November after its capital position deteriorated below required levels. The concentration of public and private deposits at Ueno is a key factor in the risks Fitch is monitoring for Paraguay’s credit profile.

The banking crisis has triggered Paraguay’s deepest political crisis in more than a decade. The collapse of Ueno led to intense scrutiny of ties between the lender and President Santiago Peña. The situation culminated in Peña’s resignation followed by a Senate vote to remove him from office over his links to the bank’s collapse.

Authorities have moved to manage the fallout and shore up confidence in economic policy. A new central bank chief has been installed as part of efforts to contain the crisis and support the financial system. Paraguayan prosecutors have widened their investigation into Ueno’s failure, including a raid on the bank’s brokerage arm, adding a legal dimension to the ongoing response.

Fitch’s negative watch indicates that Paraguay’s BB+ rating faces increased downside risk as the authorities navigate the consequences of the Ueno collapse. The combination of frozen deposits, exposure of public funds and heightened political uncertainty has become central to the assessment of the country’s creditworthiness. Further developments in the banking system, fiscal accounts and policy continuity will be important in determining whether the rating is ultimately downgraded.