UBS Warburg raised its rating on Greek banks to «neutral» yesterday, saying current valuations suggested its previous «underweight» stance was no longer appropriate. UBS said Greek banks are operating in a favorable macroeconomic environment of high growth, with risks stemming from the relatively high inflation. «Greek banks have fallen by 22 percent year-to-date, underperforming the local market by 7.2 percent and the Eurotop 300 banks index by 11.6 percent,» the report said. At current prices, the Greek banks’ price-over-earnings (P/E) ratio is at 10.3 times their estimated 2003 earnings, versus 11.8 for European banks. For 2004, the discount is even larger. «Current valuations suggest that an underweight stance is no longer appropriate. However, the cash flow challenge… suggests that some discount is appropriate. Therefore we upgrade our stance, but only to neutral,» it said. The report says that a positive sign for Greek banks is that there is no deterioration in credit quality. On the negatives, it emphasizes the slow rate of employment attrition. On individual banks, UBS said it upgraded its recommendation on Alpha Bank and Commercial Bank from «reduce 2» to «neutral 2.» It raised the price target for Alpha to 10.2 euros from 9.3 euros and reduced it to 9.1 euros from 9.3 euros for Commercial. UBS Warburg also upgraded EFG Eurobank from «neutral 2» to «neutral 1,» saying the upgrade reflected the bank’s improved positioning and management delivery targets in a challenging environment. However, it reduced the price target from 10.5 to 8.8 euros. UBS retained its «neutral 2» recommendation on National Bank, Greece’s largest, and significantly reduced the target share price to 9.8 euros from 12.3 previously. It also retained a similar recommendation on Piraeus Bank, while its target share price was reduced from 5.5 to 5.3 euros.