The National Council of Churches will no longer do business with Continental National Bank and Trust Company of Chicago because of its policy of granting loans to the Republic of South Africa, it was announced here.

The bank was called "a financial lifeline to the apartheld government of South Africa" by the Rev. W. Sterling Cary, top official of the United Church of Christ in Northern Illinois and member of the NCC governing board.

Cary said the council's checking account with the bank averaged about $75,000 and that in closing out the account and agency withdrew about $40,000.

The withdrawal of funds is the first since the governing board of the council declared in November 1977 that the NCC would "understake to withdraw all funds and close all accounts" in financial institutions that invest in or make loans to South Africa.

In a letter Continental executive vice president Ray Myers, Stephen A. Feke, the council's chief finance officer said, "It is our understanding that, while your bank denies making any recent loans to the government or any of its agencies, the bank refuses to articulate a specific policy prohibiting such loans."

Noting that the National Council and its predecessor body have "enjoyed a banking relationship with Continental Bank since 1946," Feke expressed appreciation for the bank's service and said the account was being closed "with regret."

"We once again urge the board and management of the bank to adopt a policy consonant with the position of the National Council of Churches to the end that apartheid may be eradicated with white minority rule ended," Feke said. "We look forward to the day in which the National Council of Churches, in conscience, can renew its business relationship with Continental Bank."

The funds withdrawn will be deposited in First Bank of Elkhart, Ind., since the checking account is for the use of CROP, an NCC agency with headquarters in Elhart.

The National Council of Churches has no investments in banks that do business with South Africa. The council has a payroll account with Citibank and a checking account with Chase Manhattan, both of which have South African involvements.