KDB Financial Group said Friday that it will conduct due diligence on HSBC Korea for about a month, starting next week, to take over their 11 retail branches.

Under an agreement between the two sides, any either have the right to nullify the provisional deal according to the inspection results, state-run KDB officials said.

“The two sides will make public the provisional agreement possibly early next week. But either side is entitled to scrap the deal as the agreement will be nonbinding,” a KDB spokesman said Friday.

He added that a memorandum of understanding, which will carry legal binding power, could be signed between the KDB and the U.K.-based financial group after the due diligence.

Responding to a news report that said the takeover price will range between 250 billion won ($220 million) and 300 billion won, the spokesman said the detailed sale terms could be changed through further talks.

Unlike in ordinary mergers and acquisitions, the two sides have reportedly agreed to adopt the method of purchase and assumption in trading the retail branches in Korea.

Under the P&A, buyers are entitled to acquire only the viable assets, not all of them, on a selective basis.

The P&A allows KDB Financial to decline to acquire nonviable assets of HSBC Korea according to result of the coming due diligence.

When the takeover process is completed, KDB will see the number of bank branches increase to 73 and the amount of consumer loans surge to more than 2 trillion won, from the current level of less than 200 billion won.

A takeover of a bank is critical for KDB Financial Group because the group needs to expand its deposit base before privatization.

The government, which owns 100 percent of the group, must start reducing its stake no later than May 2014 under the current blueprint for KDB’s privatization.

KDB Financial chairman Kang Man-soo has said the state-run financial group will sell 10 percent of the shares held by the government by the end of 2012.

Kang has vowed to buy a local bank as part of efforts to privatize the group and beef up its competitiveness.

His business policy is drawing wide interest ― in terms of M&As, in particular ― as KDB failed to take over Woori Financial Group in 2011.

As financial regulators are set to put the public funds-injected Woori Financial up for sale again, several big financial firms, such as KDB Financial and KB Financial Group, have been picked as potential bidders.

By Kim Yon-se (kys@heraldcorp.com)