Citicorp Chairman Walter B. Wriston predicted yesterday that sluggish domistic loan demand would revive and result in a large increase in bank lending in the United States.

Wriston, talking to reporters after the annual meeting of the nation's second largest bank holding company here, said he thought loan demand at Citibank would grow between 12 and 14 percent in 1978.

Citibank of New York is Citicorp's major subsidiary.

The loan growth here should boost domestic earnings of the giant financial services company, which last year earned nearly 80 percent of its profits from foreign operations.

Citicorp reported a 6 percent earnings decline last year. But the company's first-quarter earnings this year took a sharp upward leap, Wriston told shareholders yesterday.

The company reported record earnings of $106.3 million (80 cents a share), up 15 percent from the $92.6 million (74 cents) the giant bank holding company earned in the first quarter of 1977.

Citicorp reported revenues of $1.52 billion in the first quarter this year, compared with $1.16 billion in the first quarter of 1977.

"These results demonstrate the strength of Citicorp's earnings stream in both domestic and international activities and reflect the fact that this quarter's earnings' stream was not called upon to absorb charges associated with Australian operations and bond trading which we took in 1977," Wriston told shareholders.

The company lost $29 million last year on its Australian operations and invested an additional $52 million to expand its consumer banking business, Wriston said. Both these activities ties contributed to the earnings decline," as did the bond trading losses.

Wriston, at the company's first shareholder meeting held outside New York City, critized banking regulation as outmoded. He charged that banks are being prevented from entering new types of business under the erroneous assumption that "banks have some kind of monopoly on money and credit. It is the same kind of dangerous misconception that dominated the regulators of railroads long after the traffic had been diverted from the railroads to the trucks, the barges and the airplanes."

Wriston noted that the three biggest retail chains have the equivalent of 11 percent of all outstanding consumer installment loans and that the 8 biggest consumer finance companies have more than $51 billion in loans outstanding, more than all the loans outstanding at the major New York banks.

The charged that "while state and federal banking regulators continue arguing about who should be allowed to write checks, pay interest on deposits - and how much interest - and whether a computer terminal is a bank, the customers have been taking their business somewhere else, just as shippers and passengers took their business away from the railroads." Banks today hold 40 percent of all financial assets, down from 57 percent at the end of World War II.

The company's annual meeting was a short, two-hour affair. A coalition of church groups tried to pass a shareholder proposal which would have barred Citicorp from making loans in South Africa, but the measure was soundly defeated. Wriston said, however, that the company has decided not to make any loans to the South African government, in part because it finds that country's apartheid policies "repugnant."

He said that the company feels that refusing to make private loans would cause unemployment and hurt the social status of blacks in South Africa.

The shareholders also overwhelmingly defeated a proposal by professional shareholder and corporate gadfly Evelyn Y. Davis that would have forced the company to disclose, among other things, any loans it makes to public officials.

Former Treasury Secretary William E. Simon was elected to Citicorp's board yesterday.