The stake is owned by Texas-based private equity firm Lone Star.
A year after agreeing the deal, HSBC said its plans to buy the stake were no longer in the best interests of its shareholders.
There has been speculation HSBC will instead use the money to buy one of the western banks hit by the credit crunch.
It has already been linked with both Washington Mutual and Royal Bank of Scotland.
The deal to buy KEB has been complicated by legal disputes surrounding Lone Star's investment activities in South Korea.
Without the necessary approval from South Korean regulators, HSBC said it was free to withdraw its offer.
"In the light of developments around the world, not least changes in asset values in world markets, we do not believe it would be in the best interests of shareholders to continue to pursue this acquisition on the terms negotiated last year," said HSBC Asia chief executive Sandy Flockhart.
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