South Korea's finance ministry raised its worrying voice over the potential side effects from stronger won such as worsening profitability of exporters and weaker price competitiveness of export items.

South Korean won's appreciation against the U.S. dollar will cause worsening profitability of export companies in the short term, while weakening export competitiveness amid higher export prices in the long run, the Ministry of Strategy and Finance said Tuesday in a statement unveiled after the regular crisis- management meeting.

The won rallied 7.58 percent against the dollar over the past year due to quantitative easing by central banks in major economies and the relatively solid fundamental of the country. The local currency surged about 20 percent versus the Japanese yen as expectations for expansionary monetary policy spread under the new government in Japan.

Small- and mid-sized enterprises (SMEs) in Seoul have been hit harder in profits by stronger won than large firms as smaller companies have less non-price competitiveness such as brand power and product quality along with passive response to currency risks, the ministry said. A 1 percentage point fall in the won/dollar exchange rate would reduce operating profit margin by 0.094 percentage point for large corporations and by 0.139 percentage point for SMEs, according to the estimate by Samsung Economic Research Institute (SERI).

In terms of price competitiveness, the decline in the won/ dollar rate tends to have more negative impacts on the auto and IT sectors, which depend on exports to major economies. The fall would have some positive effects on the steel and oil refining sectors as the energy-dependent industries may benefit from lower import prices of commodities amid stronger won.

The ministry planned to help SMEs reduce potential side effects from the stronger won by offering policy funds and providing currency risk management tools through public financial organizations.