My first Publication ocbc_ar17_fullreport_english | Page 223

37. GOODWILL AND INTANGIBLE ASSETS (continued)
Impairment tests for goodwill
For impairment testing, goodwill is allocated to the Group’s cash generating units (“CGU”) identified mainly to business segments
as follows:
Carrying value
Basis of determining
recoverable value
Cash Generating Units
Goodwill attributed to Banking CGU
Global Consumer Financial Services
Global Corporate Banking
Global Treasury
Value-in-use
Appraisal value
Value-in-use
Value-in-use
Value-in-use
Value-in-use
Value-in-use
Great Eastern Holdings Limited
Bank of Singapore Limited
Lion Global Investors Limited
OCBC Wing Hang Bank Limited
PT Bank OCBC NISP Tbk
Others
2017
$’000 2016
$’000
844,497
570,000
524,000
1,938,497
427,460
805,396
29,635
1,059,921
182,580
7,301
4,450,790 844,497
570,000
524,000
1,938,497
427,460
946,741
29,635
1,155,603
200,373
9,139
4,707,448
The value-in-use calculations apply a discounted cash flow model using cash flow projections based on financial budgets and forecasts
approved by management covering a five-year period. The cash flow projections are discounted at a pre-tax discount rate that includes
a reasonable risk premium at the date of assessment of the respective CGU. Cash flows beyond the fifth year are extrapolated using the
estimated terminal growth rates (weighted average growth rate to extrapolate cash flows beyond the projected years). The terminal
growth rate for each CGU used does not exceed management’s expectation of the long term average growth rate of the respective
industry and country in which the CGU operates. The discount rates and terminal growth rates used are tabulated below for
applicable CGUs.
Banking CGU
Discount rate
Terminal growth rate
Bank of Singapore Limited
OCBC Wing Hang Bank
Limited
PT Bank OCBC
NISP Tbk
2017 2016 2017 2016 2017 2016 2017 2016
8.3%
2.0% 10.8%
2.0% 10.2%
2.0% 10.8%
2.0% 9.8%
3.0% 10.8%
4.0% 12.3%
4.0% 12.3%
5.0%
For the insurance CGU, the Group applies the appraisal value technique for its value-in-use calculation. This technique is commonly
used to determine the economic value of an insurance business, which comprises two components: embedded value of in-force
business and existing structural value (value of future sales). The embedded value of the life assurance business is the present value
of projected distributable profits (cash flows) of the in-force business. The cash flows represent a deterministic approach based on
assumptions as to future operating experience discounted at a risk adjusted rate of 7.00% (2016: 7.25%) and 8.75% (2016: 9.0%) for
Singapore and Malaysia respectively. The assumptions take into account the recent experience of, and expected future outlook
for the life assurance business of the CGU. Investment returns assumed are based on long term strategic asset mix and their expected
future returns. The existing structural value is the value of projected distributable profits from new businesses, which is calculated
based on new businesses sold for the nine months ended up to 30 September and applying a new business multiplier to the value of
future sales.
BUILDING ON OUR CORPORATE STRATEGY FOR SUSTAINABLE GROWTH
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