The deteriorating local real estate market yesterday forced another major bank, C&S/Sovran Corp., to announce a substantial increase in problem loans and to indicate that economic conditions in the region may get worse early next year.

C&S/Sovran, which was created through the recent merger of Sovran Financial Corp. of Norfolk and Citizens and Southern Corp. of Atlanta, said its troubled loans will increase by $200 million, nearly double the estimate given by company officials just one month ago. While the rise in problem loans will wipe out the bank company's earnings in the fourth quarter, it expects to report a profit for the year.

Analysts called yesterday's announcement a warning sign that more hard times are ahead for the region's economy, a point underscored by recently released statistics that show commercial real estate loan troubles continue to grow faster in the Washington area than anywhere else in the nation.

Nearly 20 percent of the commercial real estate loans in the District are either in default or are no longer paying interest, according to Anthony Davis, who follows the area's banks for the Wheat, First Securities Inc. brokerage in Richmond.

"That's an alarming number," Davis said. "I don't know that it says we will have massive bank failures in our part of the world, but it's clear that it will take a good, long while to work out the problems here."

C&S/Sovran's announcement follows a similar report by Crestar Financial Corp., which said last week that the region's economic downturn and weakening real estate markets would force it to recognize millions of dollars of real estate loan problems in the quarter. The Richmond-based bank company had managed to avoid major loan losses for the first nine months of the year.

Crestar and C&S/Sovran join a long list of local banking companies that have been severly affected by the glut of office space, the slowdown in home sales and the resulting financial woes of area developers like Conrad Cafritz and Dominic F. Antonelli.

Dominion Bankshares Corp., Signet Banking Corp., Riggs National Corp., Perpetual Financial Corp., Ameribanc Investors Group, James Madison Ltd. and dozens of other smaller institutions all have been hit hard the real estate downturn.

Declining real estate values are threatening the survival of the biggest bank company based in the area, MNC Financial Inc. of Baltimore, the parent of Maryland National Bank and American Security Bank.

MNC financed more construction in the Washington area than any other local financial institution. Since the beginning of the year, nearly $1 billion of its loans have soured -- most of those related to real estate. MNC's mammoth problems have forced it to try to sell off subsidiaries -- including its prized credit card operation -- to raise cash.

Yesterday, MNC said it agreed to sell its consumer finance operation, Landmark Financial Services, to Primerica Corp. for $370 million. But that sale, and the previously announced sale of its leasing division, have provided only a fraction of the money that MNC needs to successfully weather its real estate problems, analysts said.

Not since the mid-1970s have area banks faced such problems, according to statistics that show the level of troubled loans in the region at a 15-year high. Nevertheless, analysts cautioned yesterday that the region's economy is just entering its downward cycle.

"Most of the banks are at a fairly early stage of recognizing the potential for problems," said Judah Kraushaar, a senior bank analyst for Merrill Lynch Capital Markets in New York. "It's going to be quite a while before we see any turnaround."

Kraushaar and other analysts said that bankers' conservative reactions to the declining health of the local economy are exacerbating the economic slowdown. To reduce the risk of future loan defaults, many area banks have tightened their lending standards. But the lack of credit has "paralyzed the real estate market," Davis said, adding to the banks' overall problems.

Federal regulators, alarmed at the state of the nation's economy and reports that banks have cut back on lending too dramatically, recently have taken several steps to encourage banks to extend additional credit to customers.

Although C&S/Sovran's branch network stretches through seven states from Florida to the District, it said its problems stem largely from the $1.2 billion in construction loans it has made in the Washington area.

Slightly more than half of those loans were made to finance land acquisitions. Typically, the largest losses endured by lenders in down real estate cycles come from loans secured by land rather than by buildings because land does not produce any income and land values tend to be volatile.

C&S/Sovran said it will add about $225 million to its loan-loss reserve, a fund set up to account for actual and anticipated loan losses. Because that money comes directly out of the company's bottom line, C&S/Sovran's fourth-quarter earnings will be wiped out, the company said.

Bennett A. Brown, chairman and chief executive officer, said, "If conditions in our market continue to deteriorate, thereby negatively affecting borrowers and asset values, we could expect {similar problems} in the first quarter of 1991."

However, unlike most other bank companies that have been hit by real estate problems, C&S/Sovran said its overall earnings for the year are expected to be positive, about $200 million. Bank officials said yesterday that C&S/Sovran's overall earnings will allow it to pay shareholders their regular quarterly dividend of 39 cents per share.

The dividend announcement helped buoy the company's stock price on the New York Stock Exchange yesterday, closing at $16, up 25 cents, analysts said. But C&S/Sovran stock is near the bottom of its range of $14.75 to $31.25 in the past 52 weeks.

Analysts said yesterday that because so many Washington-area banks have exhausted their financial resources dealing with the real estate downturn, it would be difficult for them to handle problems with consumer or other loans that may arise.

If unemployment continues to increase and consumers fail to keep up with their payments, "area banks will be thrown into turmoil," Davis said.

"This is perhaps the biggest threat facing Washington banks," said Kraushaar.

Many banks, including C&S/Sovran, have rushed into home equity and consumer lending markets following the downturn in commercial real estate. Consumer loans account for one-third of C&S/Sovran's loan portfolio.