Annual Financial Statements 2011 of Bank Austria

Notes to the Financial Statements of UniCredit Bank Austria AG
2.2.2. Loans and advances
Provisions were made for identifiable lending risks. To
the extent that it was possible to combine individual
risk assets into groups, provisions were made on a
portfolio basis.
2.2.3. Securities
Securities intended to be held as long-term
investments were valued at cost. Use was made of the
optional rule contained in Section 56 (2) and (3) of the
Austrian Banking Act (spreading premiums/discounts
in the profit and loss account over the period to
maturity). The relevant amounts of premiums and
discounts are indicated in item 4 of the notes to the
balance sheet (4.7. Differences between cost and
repayable amount of bonds and other fixed-income
securities).
Securities held in the trading book were marked to
market. Other securities held as current assets were
valued at cost or market, whichever was lower. Own
issues that were repurchased were stated in the
balance sheet at average cost. Details are given in
item 4 of the notes to the balance sheet
(4.8. Differences between cost and market value of
securities admitted to trading on an exchange which
are not held as financial fixed assets).
2.2.4. Equity interests and shares in group
companies
Equity interests and shares in group companies were
stated at cost. In the case of a permanent decline in
value, write-downs were made in respect of listed and
unlisted companies.
Impairment test
For the impairment test the Standard UniCredit Group
Discounted Cash Flow Valuation Model (3-phase
model) was employed throughout the Group using the
following assumptions:
� Phase 1 (2011): the figures are based on year-end
projections for net profit and risk-weighted assets
of the respective cash-generating units.
� Phase 2 (2012–2021):
­ Phase 2a – planning period (2012–2015): the
2012 budget figures for net profit and riskweighted
assets were used for 2012, and multiyear
planning figures were used for subsequent
years.
­ Phase 2b (2016–2021): in this phase the growth
rates of net income and risk-weighted assets
converge towards 2%. 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%).
Phase 2a is the result 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.
Bank Austria – Annual Financial Statements 2011 216