Five major South Korean banks are expected to suffer considerable losses as they have to write off or set aside reserves against more than 600 billion won ($541 million) in loans extended to a local home appliance maker, industry sources said Tuesday.

Monueal filed for court receivership last month after admitting it was unable to pay off some 677 billion won it had borrowed from several local banks. Earlier in the day, the home appliance maker was declared insolvent. The firm's total debt reached 730 billion as of end-September.

Monueal's chief executive is suspected of evading taxes as well as operating slush funds overseas, most of which are bank loans the firm has received by allegedly inflating the value of its export receivables.

State prosecutors said they are also looking into the local lenders' credit assessment process following allegations that some bank officials were involved in the financial scam.

By amount, the state-run Industrial Bank of Korea is the largest creditor with an outstanding 150.8 billion won, followed by another policy lender, Korea Development Bank, with 125.3 billion won, and the Export-Import Bank of Korea with 113.5 billion won, according to industry sources.

Korea Exchange Bank was also on the list of creditors with 109.8 billion won, with Kookmin Bank and NongHyup Bank trailing at 76 billion won and 75.3 billion won, respectively.

Of the loans, some 291 billion won was borrowed without collateral, and the rest was backed by collateral, but most of the loans may not be retrieved, the sources said. (Yonhap)