KBC, which was given 7 billion euros (5.46 billion pounds) by Belgium in the 2008-2009 financial crisis, had agreed in December last year to sell the business to China's Yinren Group.

But the European Commission had given KBC until the end of September this year to complete the deal and KBC said on Friday that the Chinese group had not submitted a comprehensive file to Belgium's central bank within the required time.

KBC said it had no other option than to run down the loan portfolio of ADB in a gradual and orderly manner, not granting any new loans or new business. The operation would begin with KBC absorbing ADB.

The run-down should be the last of a series of divestments and business closures made by KBC since 2009, such as the sale of its Polish operations, to meet demands set by the EU Commission as a condition for receiving state aid.

KBC, which still has to close the sale of its German unit KBC Deutschland to several investors, has already paid back 5 billion euros of the state aid it received.

KBC had recorded impairments in 2012 and 2013 related to ADB's planned sale, but said that these would have to be reversed in accordance with accounting rules. The impact in the third quarter would be a writeback of 100 million euros ($129 million).

However, loan losses would have to be recognised during the run-off period which could not immediately be recorded.

"The combined effect on the income statement will be slightly negative," KBC said.

ADB employs 160 staff, of which 100 are in Belgium. KBC said ADB's foreign entities would be closed, but its Belgian staff would be deployed elsewhere in the KBC group.

(Reporting By Philip Blenkinsop; Editing by Greg Mahlich)