South Korea's financial regulator approved a deal on Wednesday for KB Financial Group Co. to take over a local non-life insurer, paving the way for the country's second-largest banking group to beef up its non-banking business.

The Financial Services Commission gave the final nod for KB Financial to acquire LIG Insurance Co., the country's 4th-largest non-life insurance company as the internal feud-tarnished banking group is struggling to reshape its business portfolio.

Shares of KB Financial closed at 38,800 won on the Seoul bourse, up 3.19 percent, and LIG Insurance added 0.36 percent to end at 27,750 won. The benchmark KOSPI rose 0.39 percent.

KB Financial has been shaken hard by internal conflict as leaders of KB Financial and its flagship Kookmin Bank clashed over the bank's costly computation system change.

As the FSC increased pressure on the banking group to improve its governance structure, the chairmen of both KB Financial and Kookmin Bank's boards stepped down, while the boards have been working on a comprehensive plan to reform the company's management.

The takeover of LIG Insurance, a unit of LIG Group, a mid-sized local business group, has been one of KB Financial's most prioritized projects as part of its bid to strengthen its non-life insurance business.

In June of this year, KB Financial was picked as the preferred bidder to buy LIG Insurance, which has been on the selling block since November last year.

KB Financial reportedly offered 610 billion won ($553 million) for the insurer.

LIG Group has put up a stake of about 21 percent in the non-life insurer to secure cash needed to compensate retail investors for losses incurred from its 2011 financial fraud scandal.

Local banking groups have been turning to non-banking businesses in a bid to broaden their portfolio. The banking business accounts for about 75 percent of KB Financial's assets.

LIG Insurance logged a net profit of 117 billion won last year. Its assets totaled 20.7 trillion won at the end of last year.

With the latest takeover, KB Financial's assets would rise to some 421 trillion won, becoming the nation's No.1 banking group, and the banking giant would have 12 affiliates under its wing.

KB Financial's previous attempts to buy other financial firms fell through for various reasons. The aborted deals include a bid in 2012 to buy the South Korean unit of ING Life, and the latest one in 2013 to buy a brokerage arm of Woori Finance Holdings Co.

KB Financial is reportedly seeking to buy KDB-Daewoo Securities Co., which is expected to go up for sale next year, according to industry sources. (Yonhap)