16. Intangible assets – Goodwill
a) Breakdown
The breakdown of Goodwill based on the CGUs to which Goodwill has been allocated is as follows:
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12/31/2016 |
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12/31/2017 |
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Santander Vivienda (See Note 3.11) |
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1,734 |
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1,734 |
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1,734 |
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1,734 |
b) Changes
There were no changes in Goodwill during 2016 and 2017.
c) Impairment test
Management performed impairment test on a single CGU basis due to the merger of Santander Vivienda, Santander Hipotecario and Santander Holding Vivienda as described in Note 3.11
The main assumptions used in the calculation of the impairment of Goodwill are as follows:
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Hypotheses |
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Basis of valuation |
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Value in use: discounted cash flows |
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Period of projection of cash flows(1) |
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5 years |
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Perpetual cash flow |
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(2) |
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Discount rate(6) |
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9.22% |
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Of which: |
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Cost of Equity(3) |
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17.4% |
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Cost of Debt(4) |
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6.8% |
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Equity Structure(5) |
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23% Equity / 77% Debt |
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(1) |
The period of projections of cash flow are prepared using internal budgets and growth plans of Management, based on historical data, market expectations and conditions such as industry growth and inflation. |
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(2) |
The perpetual cash flow has been calculated based on the following formula over the last cash flow estimated [D*(1+g)//i-g)]*(1+i)^-n, where: |
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D = Last estimated cash flow, |
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g = Perpetual growth (0%), |
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i = Discount rate, and |
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n= Number of year of last estimated cash flow. |
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(3) |
The Cost of Equity has been calculated based on the following formula Rf+(ß*Pr), where: |
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Rf = Risk free rate (7.22%), |
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β = Beta (1.27), and |
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Pr = Equity Risk Premium (8.0%). |
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(4) |
The Cost of Debt has been calculated based on the actual pretax financing cost of the Bank. |
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(5) |
The Equity Structure has been calculated based on the following formula: Equity/(Total Liability+Equity). The Debt Structure has been calculated based on the following formula: Debt/(Total Liability+Equity). |
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(6) |
The Discount rate has been calculated based on the following formula: (Cost of Equity*Equity Structure) + (Cost of Debt*Debt Structure). |
Based on the foregoing, and in accordance with the estimates, projections and measurements available to the Bank’s Management in 2015, 2016 and 2017, the Bank has not recognized any impairment losses on Goodwill.