The remaining 500 billion won will be raised from private investors, mostly private equity funds, as "baby" funds, the FSC said. 

The "mother-baby" fund structure is aimed at encouraging more private investors to join the corporate restructuring market, breaking away from government-spearheaded responses to developments that have been the norm in the past, according to the statement.

Without an intervention by the "mother" fund, each "baby" fund will be allowed to choose its investment target, the FSC said.

Earlier this month, Finance Minister Kim Dong-yeon said the government will engage in constant, pre-emptive, market-centered corporate restructuring going forward.

"A market-centered restructuring approach will be sought after, and the government will set up a fund to facilitate corporate restructuring," Kim said.

On Nov. 30, the Bank of Korea raised its key interest rate for the first time in more than six years.

Choi Jong-ku, chairman of the FSC, told a meeting with representatives from the eight banks that more SMEs are likely to face financial difficulties next year in the wake of the central bank's rate hike.

"If rate hikes become more regularized, there are concerns that a number of small and medium-sized businesses, which have endured borrowing costs under record-low interest rates, could face insolvency," Choi said. (Yonhap)