Private banks will now have more time to prepare for a new lease accounting standard that will impact their leverage and make lenders more cautious, according to experts.

The new standard requires companies to account for leases on their balance sheets, a departure from their previous off-sheet treatment. In an effort to help companies struggling with the economic damage caused by COVID-19, the Financial Accounting Standards Board delayed its effective date for private companies, including banks, by one year. It now applies to fiscal years beginning after Dec. 15, 2021.

The new approach could impact banks both as lenders and borrowers, according to Christine Hoke, a finance partner at K&L Gates LLP, an international law firm. Among other changes, the FASB standard now requires that "lessees record nearly all leases on the balance sheet," according to the American Institute of Certified Public Accountants. The change may impact how banks look at the potential risk profile of a borrower as well as their own considerations of issuing debt to raise funds.

Specifically, Hoke noted that banks may be more judicious when weighing whether to lease bank branches, office space and office equipment because having those on their balance sheets could restrict how much they can borrow themselves.

"When a bank is having to report its financials, all of the bank's leases will become a factor," Hoke said in an interview. "That's true for all private companies that do not currently report operating leases on their balance sheets. Most companies will have more debt. They'll be more cautious, and financial officers may become more involved in negotiating operating leases."

An operating lease is one that allows for the use of an asset but does not convey ownership rights of the asset, such as property.

Scott Lehman, a partner in the assurance professional practice at Crowe LLP, said the economic trouble stemming from COVID-19 will cause financial havoc for leasing.

"We're going to see a lot of renegotiation in the structure of leases," he said. "Many leases may be rewritten, a lot of leases may go bad. It's a state of uncertainty that we've never seen in our lifetimes."

He noted, however, that the extension until 2022 should be "ample time" for private companies to implement the standard.

Dan Noll, senior director of accounting standards at the AICPA, said both public and private financial institutions may have leases of retail branches that could be affected by the standard. While the delay is welcome relief for private companies, they can learn from the experiences of public ones, Noll told S&P Global Market Intelligence.

"We heard without question, from a great number of public companies, that the most challenging thing was their data collection process," he said. "You could have leases scattered throughout the country, perhaps throughout the world."

"Any message to the private companies out there should be to listen to what the public ones went through. This is not an exercise you can learn on the fly," Noll said.

Despite the new effective date, with the economy struggling, "We think it's very important to see [the delay] as an opportunity," rather than an as an excuse not to start preparing, said Bob Malinowski, a senior director at consulting firm RSM US LLP. "Implementation almost always takes longer than people expect it to."

In the update announcing its decision, FASB said it decided to delay the standard because the pandemic "is adversely affecting the global economy and causing significant and widespread business and capital market disruptions."

Many private companies are devoting most of their resources toward coping with those disruptions and face "internal and external" constraints when it comes to implementing new requirements for lease accounting, FASB said.