Bank of Virginia Co., one of the state's "big four" commercial banking firms, will report a loss in the fourth quarter of 1976 and a sharp reduction in earnings for the full year because of a switch to more conservative accounting for problem loans.

Frederick Deane Jr., chairman of the Richmond-based bank holding company, said the new accounting is more appropriate when considering probable long-term returns of the properties involved - the largest being a land development project in the Bahamas which turned sour.

In effect, Bank of Virginia Co. has become the first major banking firm in the nation to re-evaluate downward the listed market value for properties related to problem loans, a step other banks may be required to take in the near future.

The Financial Accounting Standards Board has been debating the issue for some time and on Dec. 31 it published the first draft of proposed guidelines on how to deal with market value of the problem loan properties. The FASB, a private body which establishes rules for the accounting profession, is expected to require a switch to the more conservative accounting later this year.

By "biting the total bullet" now, as Bank of Virginia spokesman S. Joseph Ward described it yesterday, his company will report in the next fortnight 1976 profits of about $1.02 a share, down 59 per cent from $2.50 in 1975. On a dollar basis, earnings will be about $5.2 million compared with a record $11.4 million the previous year.

As a result of taking the full effect of changes in the fourth quarter, bank of Virginia will posts a quarterly loss. A company statement said management expects profits to return to "normal levels" this year.

The new accounting approach is believed to be within the framework of recent positions taken by the Securities and Exchange Commission as well as the proposed FASB rules, Deane stated.

Under the new accounting methods, Bank of Virginia Co. will discount from market value the amounts of expected net cash flows problem loan properties, at rates Deane said are commensurate with the risk involved. Previoulsy, the bank's market value listing was based on expected cash inflow from the properties, allowing carrying costs to be recognized when incurred.

As a result of the change, Deane said, a special reserved against fore-closed properties of $8.2 million was established Dec. 31 - separate from regular reserves for loan losses, which totaled $10.1 million on Sept. 30. In addition, a $2 million loan loss provision was made in December to write down the Bahamas loan prior to reclassification as foreclosed property.

Bank of Virginia has affiliated banks throughout the state, as well as subsidiaries engaged in leasing, financing and real estate, with total assets of $1.8 billion. The decision on loan reevaluation affects problem properties in the portfolois of all these companies, Ward said yesterday. Other than the Bahamas project, the company declined to be specific about the properties.