Annual Financial Statements 2010 of Bank Austria

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Consolidated Financial Statements in accordance with IFRSs A – Accounting policies (CoNTINuED) The annual impairment test of goodwill, as required by IAS 36, is carried out as at the end of each reporting period. In addition, impairment tests are performed again whenever there is an indication that goodwill may be impaired. The carrying amount of a cash-generating unit is determined on the basis of pro-rata equity and the carrying amount of goodwill allocated to that unit. The recoverable amount relating to each CGU is the value in use and is determined on the basis of future cash flows expected from each CGU to which goodwill has been allocated. The 2011 budgets, on which the following valuation calculations are based, were adopted or taken note of by the management of the respective business units and by the Management Board and Supervisory Board of Bank Austria, respectively. According to current information available to the Management Board of Bank Austria, the assumptions for the years 2012 to 2019 are in line with probable developments at the respective business units (cash-generating units). Given the imponderable nature of future economic trends, actual developments may also differ from, and be significantly worse than, these assumptions. For the fair value calculation the Standard UniCredit Group Discounted Cash Flow Valuation Model (3-phase model) was employed throughout the Group using the following assumptions: • Phase 1 (2010): the figures are based on year-end projections for net profit and risk-weighted assets of the respective cash-generating units. • Phase 2 (2011–2019) – Phase 2a – planning period (2011–2015): the 2011 budget figures for net profit and RWAs were used for 2011, and multi-year planning figures were used for subsequent years. The figures are based on economic assumptions determined by the CEE Strategic Analysis unit. – Phase 2b (2016–2019): in this phase the growth rates of net income and risk-weighted assets converge towards 2%, reflecting the expected long-term growth potential of the euro area. In accordance with IAS 36, the growth rate was capped (net income/risk-weighted assets in 2015). The discount rate in the form of cost of equity (Ke) declines to the corresponding terminal value level. • Phase 3 – perpetual annuity: calculation of the present value of a perpetual annuity on the assumption of a long-term growth rate which takes the sustained long-term economic growth expected by Bank Austria for the euro area into account (2%). Phases 1 and 2a are the results of a detailed planning process which does not exceed the 5-year horizon in accordance with IAS 36. The purpose of phase 2b is to illustrate the expected long-term convergence of growth rates in these markets to those in Europe. Calculation of cost of equity The expected cash flows are discounted at the country-specific rate of cost of capital, which is determined on the basis of the long-term risk-free interest rate of the local currency, the debt risk premium and the UniCredit equity risk premium. • risk-free rate: Calculation is based on the historical average (6 years) of the 5-year swap rate in local currency. If no swap rate was available, the most liquid and comparable interbank rate (with a 3-month tenor) was used. • risk premium for debt: This is the country risk premium calculated as the historical average (6 years) of the 5-year credit default swap paid by the country (given the lack of time series in certain countries we considered a shorter time period or the asset swap spread of a benchmark government bond). • risk premium for equity: This is calculated using the option pricing model and is based on the historical volatility of the UniCredit share price. • terminal value cost of equity: Calculations are based on the methodology of the Group applied to a sample of European banks (peers), but instead of applying the tenor of 5 years the 10-year CDS and the 10-year risk-free rate is used. The terminal value cost of equity of those CGUs operating in countries expected to enter the euro area by 2018 was set equal to the average for European banks with low exposure to CEE countries (11%). For the other CGUs the terminal value cost of equity was set equal to 12.5%, in line with the European banks having an important exposure to Central and Eastern Europe. A rate of 10.55% was used for cash-generating units classified as West European CGUs. Bank Austria · Annual Financial Statements 2010 74
Consolidated Financial Statements in accordance with IFRSs A – Accounting policies (CoNTINuED) We should also stress that the parameters and the information used to test goodwill impairment are significantly influenced by the macroeconomic environment and market conditions, which can be subject to rapid unforeseeable changes, possibly leading to very different results as compared to those used for the 2010 consolidated financial statements. A sensitivity analysis was carried out for selected CEE CGUs (see table below; for the other CEE CGUs the results of the sensitivity analysis are not significant because there is no goodwill). This involved changing the cost of equity or the terminal value growth rate so that the fair value of the CGU equals the respective carrying amount. subsidiary chaNge iN Ke (perceNtage pOiNts) chaNge iN cagr (perceNtage pOiNts) Kazakhstan n.m. n.m. 1) Ukraine 0.87% –1.24% Turkey 3.83% –11.00% Serbia & Montenegro 2.30% –4.50% Slovakia n.m. n.m. 1) Russia 2.07% –4.68% Romania 6.40% n.m. 2) Hungary 5.14% –15.06% Czech Republic 4.20% –14.27% Bulgaria 12.62% n.m. 2) Bosnia 3.95% –14.54% Croatia 1.86% –4.11% 1) No significant result due to fair value close or equal to carrying amount. 2) In view of the high profitability, the results of the sensitivity analysis are not significant. A.7 – Group of consolidated companies and changes in the group of consolidated companies of the Bank Austria Group in 2010 Consolidated companies Opening balance 97 additions 35 Newly established companies 3 Companies newly added to the group of consolidated companies 32 disposals 8 Companies sold or liquidated 6 Mergers 2 clOsiNg balaNce 124 Companies accounted for under the proportionate consolidation method Opening balance 16 Additions 1 Disposals – clOsiNg balaNce 17 Companies accounted for under the equity method Opening balance 19 additions 6 Newly established companies 1 Newly added companies 5 disposals – clOsiNg balaNce 25 Bank Austria · Annual Financial Statements 2010 Number Number Number 75
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Annual Financial Statements 2010 of Bank Austria

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