Capital shortfalls among the larger, internationally active banks are estimated at €27.9 billion, the Bank for International Settlements said in their annual report, published overnight.This number is "less than one per cent of these banks' combined CET1 capital," though the BIS analysis draws on bank balance sheets that are already two years old.This latest estimate "probably overstates the true shortfall, as it does not account for banks' business model or portfolio adjustments in response to more regulations," the BIS said.This shortfall is much smaller than an estimate of "total capital shortfalls" of in excess of €103 billion" produced the BIS three years ago.The BIS expressed optimism over the broader state of the global banking sector and banks' adjustment to the blizzard of post-crisis rules."With bank balance sheet adjustment to the new regulatory standards mostly completed, a key question concerns the degree to which tighter regulation translates into increased bank resilience - Basel III's ultimate objective," the annual report said."In the aggregate, higher capital and resilience have been achieved with little sign of an adverse impact on bank lending."Bank lending to the private nonfinancial sector as a share of GDP has remained stable in many jurisdictions - meeting or exceeding pre-crisis averages."The BIS raised its concerns over the outlook for bank profitability. "Bank profitability is critical for resilience, as it affects the speed with which banks can recover from losses," it said. "Despite the progress made in terms of balance sheet and business model adjustments, market valuations for many banks point to continued investor scepticism about profitability prospects. "Average bank price-to-book ratios hovered around a level of two times book value right before the GFC. They then plummeted to values below one in 2008/09, and recovered only recently, while generally remaining lower than pre-crisis, especially for European banks.""Bank credit default swap spreads and stand-alone credit ratings … tell a similar story. Even though pre-crisis levels are unlikely to be an appropriate benchmark, this suggests that reduced bank profitability has at least partly offset the stabilising effect of reduced leverage and maturity transformation."In adviser mode, the BIS said "banks could seek to raise profitability and valuations in time-tested ways, such as cutting costs and repairing balance sheets by eliminating non-performing loans."