| 15. | Intangible assets, net |
| (a) | Intangible assets as of December 31, 2016 and 2017 are as follows: |
| 2016 | 2017 | |||||||
|
Goodwill |
3,873,060 | 3,915,163 | ||||||
|
Software |
94,261 | 83,829 | ||||||
|
Development cost |
56,563 | 75,322 | ||||||
|
Other |
202,628 | 197,655 | ||||||
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| 4,226,512 | 4,271,969 | |||||||
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| (b) | Changes in intangible assets for the years ended December 31, 2016 and 2017 are as follows: |
| 2016 | ||||||||||||||||||||
| Goodwill | Software | Development cost |
Other | Total | ||||||||||||||||
|
Beginning balance |
3,871,482 | 93,914 | 66,843 | 234,100 | 4,266,339 | |||||||||||||||
|
Acquisitions |
— | 37,682 | 21,001 | 29,882 | 88,565 | |||||||||||||||
|
Business combination |
4,427 | — | — | — | 4,427 | |||||||||||||||
|
Disposals |
— | (37 | ) | — | (10,725 | ) | (10,762 | ) | ||||||||||||
|
Impairment (*1) |
(2,849 | ) | — | — | (261 | ) | (3,110 | ) | ||||||||||||
|
Amortization (*2) |
— | (37,636 | ) | (31,281 | ) | (50,422 | ) | (119,339 | ) | |||||||||||
|
Effects of foreign currency movements |
— | 338 | — | 133 | 471 | |||||||||||||||
|
Other |
— | — | — | (79 | ) | (79 | ) | |||||||||||||
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Ending balance |
3,873,060 | 94,261 | 56,563 | 202,628 | 4,226,512 | |||||||||||||||
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| 2017 | ||||||||||||||||||||
| Goodwill | Software | Development cost |
Other | Total | ||||||||||||||||
|
Beginning balance |
3,873,060 | 94,261 | 56,563 | 202,628 | 4,226,512 | |||||||||||||||
|
Acquisitions |
— | 27,354 | 40,378 | 56,982 | 124,714 | |||||||||||||||
|
Business combination |
42,103 | — | — | — | 42,103 | |||||||||||||||
|
Disposals |
— | (21 | ) | — | (12,901 | ) | (12,922 | ) | ||||||||||||
|
Impairment (*1) |
— | — | (206 | ) | 26 | (180 | ) | |||||||||||||
|
Amortization (*2) |
— | (38,095 | ) | (21,413 | ) | (48,941 | ) | (108,449 | ) | |||||||||||
|
Effects of foreign currency movements |
— | 330 | — | (139 | ) | 191 | ||||||||||||||
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Ending balance |
3,915,163 | 83,829 | 75,322 | 197,655 | 4,271,969 | |||||||||||||||
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| (*1) | The Group recognized impairment losses from golf and condo memberships with indefinite useful lives for the difference between recoverable amounts and carrying amounts. |
| (*2) | The Group recognized amortization of intangible asset in general and administrative expenses and net other operating expense. |
| (c) | Goodwill |
i) Goodwill allocated in the Group’s CGUs as of December 31, 2016 and 2017
| 2016 | 2017 | |||||||
|
Banking |
781,859 | 823,962 | ||||||
|
Credit card |
2,773,231 | 2,773,231 | ||||||
|
Securities |
5,645 | 5,645 | ||||||
|
Life insurance |
275,371 | 275,371 | ||||||
|
Others |
36,954 | 36,954 | ||||||
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| 3,873,060 | 3,915,163 | |||||||
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ii) Changes in goodwill for the years ended December 31, 2016 and 2017
| 2016 | 2017 | |||||||
|
Beginning balance |
3,871,482 | 3,873,060 | ||||||
|
Acquisitions through business combinations (*1) |
4,427 | 42,103 | ||||||
|
Impairment loss (*2) |
(2,849 | ) | — | |||||
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Ending balance |
3,873,060 | 3,915,163 | ||||||
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| (*1) | The Group recognized the goodwill at the Shinhan Bank Vietnam Ltd. in 2017. (note 49) |
| (*2) | The Group recognized full impairment on the goodwill allocated to PT. Shinhan Indo Finance in prior year. |
iii) Goodwill impairment test
The recoverable amounts of each CGU were evaluated based on their respective value in use.
| • | Explanation on evaluation method |
The income approach was applied when evaluating the recoverable amounts based on value in use, considering the characteristics of each unit or group of CGU.
| • | Projection period |
When evaluating the value in use, 5.5 years of cash flow estimates – July 1, 2017 through December 31, 2022 – was used in projection and the value thereafter was reflected as terminal value. In case of Shinhan Life Insurance, only the 30 years of future cash flows were applied since the present value of the future cash flows thereafter is not significant.
| • | Discount rates and terminal growth rates |
The required rates of return expected by shareholders were applied to the discount rates by calculating the cost of capital which comprises a risk-free interest rate, a market risk premium and systemic risk (beta factor). Expected terminal growth rate is on the basis of inflation rates.
Discount rates and terminal growth rates applied to each CGU are as follows:
| Discount rates | Terminal growth rate | |||
|
Banking |
6.6%~13.5% | 0.7%~3.4% | ||
|
Credit card |
7.6% | 1.7% | ||
|
Securities |
11.3%, 12,9% | 3.4% | ||
|
Life insurance |
8.5% | — | ||
|
Others |
9.4%, 12.0% | 1.7% |
iv) Key assumptions
Key assumptions used in the discounted cash flow calculations of CGUs (other than Shinhan Life Insurance) are as follows:
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 and thereafter |
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|
CPI growth |
1.9 | % | 1.7 | % | 1.5 | % | 1.6 | % | 1.7 | % | 1.7 | % | ||||||||||||
|
Real retail sales growth |
2.5 | % | 2.1 | % | 1.9 | % | 2.0 | % | 2.2 | % | 2.2 | % | ||||||||||||
|
Real GDP growth |
2.9 | % | 2.3 | % | 1.9 | % | 2.6 | % | 2.8 | % | 2.8 | % | ||||||||||||
Key assumptions used in the discounted cash flow calculations of Shinhan Life Insurance are as follows:
| Key assumptions | ||||
|
Rate of return on investment |
3.15 | % | ||
|
Risk-based capital ratio |
204.70 | % | ||
The values for the CPI growth rate, real retail sales growth rate, real GDP growth rate, rate of return on investment and risk-based capital ratio are based on a combination of internal and external analysis.
v) Total recoverable amount and total carrying value of CGUs to which goodwill has been allocated, are as follows:
| Amount | ||||
|
Total recoverable amount |
42,196,357 | |||
|
Total carrying value(*) |
37,160,566 | |||
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| 5,035,791 | ||||
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| (*) | The goodwill recognized at the acquisition of the retail business of ANZ Vietnam is excluded from the table as the measurement of the fair value of assets acquired and liabilities assumed are not completed (see Note 49). |