Largest local banks still cutting assets to prepare for better times.

The recession's stranglehold on Los Angeles County-based banks is reflected in this week's List of the top 25 area banks, which shows some banks shrank assets by as much as 20 percent, and assets decreased by 2 percent overall.

Bank assets at the top 25 banks based in Los Angeles County totaled $72.324 billion as of June 30, compared with $73.808 billion at the same time in 1991, a decline of 2 percent, according to The List.

Meanwhile, during the same period, assets at banks nationwide grew by 1.8 percent, noted Ken Ackbarali, senior economist with First Interstate Bancorp in Los Angeles. During a healthy year, bank assets grow at a rate of about 5 percent, he said.

Ackbarali said there are two main reasons for the shrinkage. First, many banks with troubled loan portfolios are shedding loans through write-offs, he said. Secondly, loan demand from consumers and business customers is low because of the recession, Ackbarali said.

"Businesses don't need as much capital because their sales are down," Ackbarali said. "Consumers are paying off their debt."

Shrinking of assets can have a negative impact on profitability, because profitability is judged by return on assets, Ackbarali said. However, if the institution is ridding itself of bad loans, it can be a positive step, he said. His employer, First Interstate, which topped The List, trimmed assets by 1.6 percent.

The 17.1 percent drop in assets at Manufacturers Bank, from $1.277 billion in June 1991 to $1.059 billion in June 1992, is a reflection of the restructuring of the bank, said Peter Lowe, chief financial officer of the L.A.-based institution.

Manufacturers, which was formerly known as Mitsui Manufacturers Bank, dropped from No. 7 on last year's List to No. 8 this year.

Lowe said the company shrank assets in two ways. First, it placed $100 million in bad loans in a separate corporation in January, and secondly, it has since has dropped out of participating in certain large loan deals with other U.S. banks.

Manufacturers intends to grow in the future and is now completely focused on lending to California middle-market companies, Lowe said.

Other banks which reported large decreases in assets include No. 2-ranked, Beverly Hills-based City National Corp. (14.8 percent) and No. 18-ranked, Encino-based California United Bank (20.7 percent).

West L.A.-based Mercantile National Bank downsized assets by 27.7 percent, Pasadena-based Community Bank by 11 percent and L.A.-based Dai-Ichi Kangyo Bank of California by 10.3 percent.

Not all banks trimmed assets. Among banks whose assets grew significantly in the past year were Los Angeles-based Cathay Bank (14.6 percent), L.A.-based California Commerce Bank (15.9 percent), and L.A.-based Metrobank (12.1 percent).

Sherman Oaks-based Trans World Bancorp, the newcomer to The List, is one bank which grew assets from $236.7 million in June 1991 to $256.7 million in June 1992, a jump of 8.4 percent.