Credit spread
The additional interest rate above a risk-free benchmark that reflects the credit risk of the borrowing entity.
Definition
The credit spread is the entity-specific adjustment applied on top of a risk-free benchmark rate (such as SONIA or €STR) to arrive at the entity's borrowing rate. It reflects the risk premium a lender would charge given the entity's creditworthiness, size, and financial position.
Why it matters
The credit spread is a key input into the OBR method for calculating the IBR. Entities with weaker credit profiles carry a higher credit spread, resulting in a higher IBR and lower initial lease liability.
In AuditLease
AuditLease will allow entities to save a credit spread profile per entity in Phase J. This is used as a default in the OBR suggestion engine and can be overridden per lease.
Related terms
Put this into practice with AuditLease
AuditLease handles IFRS 16 and FRS 102 lease calculations, statutory note generation, journal entries, and audit evidence — so your team spends less time on spreadsheets and more time on judgements.
This definition is for general information only and is not accounting or legal advice. Definitions are based on IFRS 16, FRS 102, and associated guidance published by the IFRS Foundation and the Financial Reporting Council. Users should refer to the applicable accounting standards and their professional advisers for judgement-specific matters.