SEOUL/HONG KONG (Reuters) - ING Groep (>> ING GROEP) drew closer to completing its year-and-a-half-old Asia divestment plan as private equity firm MBK Partners was set to agree on Monday to buy a 90 percent stake in its South Korean insurance unit for 1.63 trillion won (963.5 million pounds).

The sale of ING's South Korean unit would leave the bailed-out Dutch firm with its Japan insurance unit left to sell, bringing it closer to fulfilling its agreement with European regulators to offload more than 50 percent of its Asian operations by the end of 2013.

Since its rescue in 2008, ING has dismantled its once-fashionable banking and insurance model and announced thousands of job cuts and other cost savings. ING has raised about 23 billion euros in total from divesting insurance, investment management and other assets to repay state aid.

MBK and ING are set to sign an agreement later on Monday that would value the business at about 1.81 trillion won, a source with direct knowledge of the matter said. The deal would give MBK the right to use ING's brand name for the next three years, the source added.

MBK is seeking an up-to 1 trillion won syndicated loan to fund the acquisition, Basis Point reported last week.

If completed, it would mark South Korea's largest insurance M&A deal, surpassing the $1 billion purchase of a 24 percent stake in Kyobo Life Insurance Co last year by a consortium led by private equity firm Affinity Equity.

By retaining a minority stake, ING will be able to ensure a smooth transition of the business into the hands of the private equity firm, the source added. The source declined to identified as the information is not public yet.

MBK recently entered exclusive talks for the controlling stake after the insurance unit attracted a total of four bids in May, including from Tong Yang Life Insurance Co Ltd (>> Tong Yang Life Insurance Co Ltd), Hanwha Life Insurance Co Ltd (>> Hanwha Life Insurance Co Ltd) and Kyobo Life Insurance Co Ltd, sources previously told Reuters.

But the sale of the South Korean unit had never been a smooth process. In December last year, KB Financial Group Inc (>> KB Financial Group Inc) walked away from a $2.1 billion bid to buy the unit. In June, a Tong Yang-Vogo Fund consortium also dropped out after entering exclusive talks to buy the unit, South Korean media reported.

ING's Japanese insurance unit stopped selling variable annuities in 2009 and it was unclear when ING would reach an agreement on its sale. The Japanese financial regulator is reluctant to let a private equity firm own that business, sources previously reported.

ING is also seeking buyers for its stake in Thailand TMB Bank (>> TMB Bank PCL), Reuters previously reported.

Last year, ING sold its Hong Kong, Macau and Southeast Asian insurance operations for a combined $3.87 billion in an auction that generated strong bidding.

Like other M&A transactions, ING's sale of the South Korean business is subject to regulatory approvals.

A spokesman for MBK declined to comment. A spokeswoman for ING could not be immediately reached for comment.

(Reporting by Joyce Lee in SEOUL and Denny Thomas in HONG KONG; Editing by Stephen Coates and Chris Gallagher)

By Joyce Lee and Denny Thomas