Signet Banking Corp. of Richmond announced yesterday that it is increasing its loan loss reserves by $21 million in the fourth quarter as part of its effort to reduce exposure in the Third World.

The increase, as well as other actions, will reduce Signet's 1987 earnings 73 percent to about $23 million (85 cents per share) from $86.3 million ($3.53). Fourth-quarter earnings will fall about 28 percent, to $17 million (65 cents) from $23.6 million (95 cents), Signet said.

Signet set aside $75 million in its second quarter to cover possible losses from loans to developing countries.

Although yesterday's reserve increase was for both domestic and foreign loans, it means that Signet has now set aside 59 percent of its $97 million worth of Third World loans in loss reserves.

Like other local banks, such as Crestar Financial Corp. and the National Bank of Washington, Signet has also been seeking to reduce its Third World loan exposure through various loan sales and swaps.

Between June 1987 and the end of the year, Signet's loan exposure in developing countries was reduced 60 percent, to $97 million from $242 million.

"These additional provisions have allowed us to move aggressively to reduce out LDC {less developed country} exposure, and I believe that our asset quality has been significantly strengthened," said Frederick Deane Jr., Signet's chairman.

In addition to increasing its loan-loss reserves, Signet announced a gain of $13 million in connection with the refinancing of some employee-benefit liabilities.

A bank increases its loan loss reserves and deducts the same amount from profits when it believes a loan is in serious trouble but not yet worthless.

When a bank decides a loan stands little, if any, chance of being repaid, it deducts the amount from the reserve, in the process reducing its capital.

Also yesterday, Security Pacific Corp., the nation's seventh-largest bank holding concern, said it would add an additional $350 million to its loss reserves to cover troubled loans to Latin America and the Philippines.

The action will give Security Pacific a loss of $40 million for the fourth quarter and trim earnings for the full year to $15 million. Fourth-quarter results are to be released later this month.