The digital lender's collapse leaves deposit insurance under strain as payouts begin for 1.8 million clients.
A little more than a week after shuttering Ueno Bank, the Central Bank of Paraguay has paid approximately 3.9 trillion guaraníes ($644 million) to more than 1.8 million depositors, according to figures reported Thursday.
The payouts could ultimately drain as much as $928 million, or 58%, from Paraguay’s Deposit Guarantee Fund, according to preliminary central bank estimates. That would leave approximately $672 million in the fund to cover future bank failures, before accounting for any recoveries.
However, any direct contagion risk seems relatively small because deposits, not loans from other banks, funded Ueno Bank, said Rhys Hicks, Associate Banking and Payments Analyst at GlobalData.
“The other banks in Paraguay fund the deposit guarantee scheme, so they will share the bill, and while they seem to be picking up the slack, they are now under some strain,” he said. “A potential issue could be fraud, as these banks are having to onboard so many customers so quickly. In the long run, this should lead to far better regulation in the country, though it may cause costs to rise for everyone.”
An Anatomy of the Pay Out
The central bank began disbursing advances of up to 121.76 million guaraníes from its Deposit Guarantee Fund to each affected depositor on Nov. 5. By the end of Nov. 9, it had made payments to 93.1% of all depositors. The remaining depositors either have restrictions on their accounts, hold certificates of deposit, or have transactions involving the Development Finance Agency.
The fund’s disbursements account for roughly 12.5% of the digital bank’s reported deposits as of Oct. 28.
This is not the first digital bank failure in Latin America this year. According to the Rio Times, Brazil’s central bank liquidated the neobank Will Financeira in January after its controller, Banco Master, collapsed under special administration.
“However, that was more to do with issues at its parent bank, while Ueno’s collapse was caused by its own lending,” said Hicks, adding that the major difference with Ueno was that it was proportionally much larger, reaching around 60% of the adult population.
Rob Daly writes about the economy and fintech. You can reach him at rdaly@gfmag.com.
