First Virginia Banks Inc. is installing a computer network based on the OS/2 operating system from International Business Machines Corp.

Under a contract valued at $16 million, IBM will replace the bank company's mainframe-based system with a local area network in each of its 354 branches.

Each network is to feature a PC server with a Pentium processor and personal computers based on 486 chips.

The $8.2 billion-asset holding company, based in Falls Church, Va., is upgrading its branch technology to keep pace with larger rivals such as First Union Corp. and NationsBank Corp., which dominate the northern Virginia market.

According to Mentis Corp., a research firm based in Durham, N.C., more than one-quarter of banks with better than $1 billion of assets planned to upgrade or acquire PC-based branch networks last year. Further, the Tower Group, Wellesley, Mass., said at least 10 of the nation's top 25 banks are overhauling branch systems in 1996.

First Virginia's new network is designed for the usual set of branch improvements: improving sales and customer service, according to John Joback, executive vice president of First Virginia Services, the bank's technology arm.

Conversion of the 95 branches in the holding company's lead bank should be completed this month. The balance of the holding company's branches - some of which are in Maryland and Tennessee - should be converted by 1997.

First Virginia is among a growing group of banks investing large amounts in client-server conversions.

Though most banks with client-server branch systems are in the Microsoft DOS operating environment, newer installations tend to be on Microsoft's Windows NT or IBM's OS/2, experts said. These newer operating systems tend to be better than DOS for multitasking.

"We looked at Windows NT but decided that OS/2 is a more stable and reliable product," said Mr. Joback. "Windows NT will become a mature product, but right now, OS/2 is ahead of the game."

OS/2 already is used by many of the nation's largest institutions, but industry experts predict a growing use of Windows NT.

First Virginia is running branch automation software from Broadway & Seymour Inc. on the new operating system.

The bank also is using image technology to store customer signatures on- line and to pull them up with account information.

For the future, the bank is planning to drop preprinted forms and produce documents on laser printers. It is also looking to install an electronic mail network.

Ms. Tucker is a freelance writer based in Hazlet, N.J.

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