Transferable letter of credit

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-06

// THE SHORT ANSWER

A transferable letter of credit is one the issuing bank has expressly marked transferable, so the first beneficiary, usually a trader, can ask a bank to make all or part of it available to its own supplier, if that bank agrees. Under the ICC's rules (UCP 600) the supplier cannot transfer it again, the terms can only be tightened (a lower amount, earlier dates), and the trader substitutes its own invoice to keep its margin private. The trader's purchase then needs no separate funding, but its margin depends on substituting on time: otherwise the transferring bank may send the supplier's documents straight to the issuing bank.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.