The Impact of Capitalization on Bank Performance

This study examined the effects of capital structure of banks on the performance of commercial banks in Nigeria, (1970-2010). The choice of the period, 1970 – 2010 is meant to capture the important changes that took place in the banking sector immediately after the cessation of civil hostilities brought about by the civil war in Nigeria, 1967 to January 15 th, 1970. Note that during this period, Nigeria had revised of the minimum capital requirements, for banks had established Community Banks, the Peoples Banks and introduced the Structural Adjustment Program (SAP). Capital position of Commercial Banks in Nigeria deteriorated in the late 1980’s, many financial institutions suffered from insolvency while many others were technically insolvent. The study captures the performance indicators of banks and employed time series of bank data obtained from the Statistical Bulletin of Central Bank of Nigeria (CBN) and Fact books. The formulated models were estimated using ordinary least square regression methods. The study identified long run positive relationship between capitalization and profitability. This is supported by the results of the research conducted by Ubom (2004), Kwan & Eisenbeis (2005) and Adegbaju & Olokoyo (2008).The result of Granger Causality indicates that the significant relationship between capitalization an