South Korea's financial watchdog plans to set up a corporate restructuring fund under the state-run debt clearer to buy bad debt from troubled local firms.

A growing number of local companies are facing a liquidity squeeze amid the global economic slump that has dealt a harsh blow to the export-driven South Korean economy, according to Yonhap News.

"Korea Asset Management Corp. plans to launch a fund to purchase bad debt and support the corporate revamp efforts," the Financial Services Commission (FSC) was quoted as saying in a statement. The watchdog said it plans to finance the fund by selling government-guaranteed bonds and draw up measures for tax benefits to speed up the overhaul process.

The FSC also said credit banks will review financial health of 44 conglomerates until April and the country will seek to launch a special fund to buy stakes in ailing local companies and to accelerate sales of assets in such companies