Credit risk in FMO’s emerging markets portfolios is a combination of country risk, counterparty (debtor) risk and product-specific risk. Management of these risks is FMO’s core business, both in the context of project selection and of project monitoring. As to project selection, the four-eye principle applies to all credit approvals, whereby the level of approval within the Risk column of the bank is determined by the nominal size of transactions. In this process, the front office and the Risk Management department use a set of investment criteria per sector that reflect benchmarks for the required financial strength of FMO’s clients. This is further supported by internal scorecards that are used for risk classification and determine capital use per transaction. This methodology is in line with Basel’s IRB approach for measuring credit risk. As to project monitoring, FMO’s clients undergo periodic reviews, at least annually, by the Investment Review Committee, while distressed clients are intensively monitored by the Special Operations department. Strong diversification within FMO’s emerging market portfolio is ensured through stringent limits on exposure to individual counterparties (single client and economic group limits), countries (from 8% to 20% of FMO’s Capital, dependent on country rating) and sectors (50% of country limit).