WHILE LOAN DEMAND continues to be sluggish in the Northeast, New York City banks are cross-selling noncredit services to their middle-market loan customers to take the pain out of a weak market.

A case in point is Bank of New York Co., which recorded a 39% increase in fees last year from services such as trade finance and investment banking for business customers, according to Joseph F. Maloney, senior vice president in charge of middle-market lending.

Many business customers need trade finance services because they are expanding internationally to compensate for the slowdown in the domestic economy, Mr. Maloney said. Others are turning to banks for advisory services.

Meanwhile, loan demand is down.

All New York commercial banks booked 6% fewer domestic business loans last year than in 1991, according to Alex Sheshunoff & Co. In New Jersey, loan volume was down 11%. Connecticut fared modestly better, but its 6% loan growth in 1992 didn't compensate for the almost 30% decline of the year before.

Mr. Maloney predicts moderate loan growth this year. But he expects fees from trade finance and investment banking services to contribute significantly to profits in his unit.

James Parakis, the chairman of IMRS Inc., a software development firm in Connecticut, is a typical middle-market customer. He says he tapped Bank of New York for a $4.5 million loan 18 months ago.

"We haven't had a need for credit" since then, said Mr. Parakis. But he added that his company is a steady buyer of the bank's cash management services.

Like other big New York banks, Bank of New York has aggressively courted middle-market businesses, focusing its efforts on wealthy suburban areas.

But Bank of New York has a long way to go to catch Chemical Banking Corp. The New York giant has relationships with 56% of all middle-market companies in metropolitan New York. Bank of New York, at 25%, is in fourth place, behind Citicorp and Chase Manhattan Corp.

Asked to pick their dominant service provider, only 3% of middle-market companies in metropolitan New York picked Bank of New York for international services, versus 15% who picked Chemical, according to a survey by Schulman, Ronca and Bucuvalas Inc., a Manhattan market research firm.

But Bank of New York boosted its share of middle-market investment banking relationships to 7% last year from 4% in 199 1. Chemical ranked first last year with 17%.

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