This study examined the impact of bank capital structure on the portfolio behaviour of commercial banks in Tanzania by using panel financial statements data of 14 banks from 1998 to 2010 on a quarterly basis. The studied banks had more than 85% of the total commercial banks assets on average during the time of study. The study objectives were to analyze the impact of the capital structure to the portfolio performance of commercial banks with respect to the size of the bank and ownership. Financial statements data from the 14 banks were collected from published bank data. Findings revealed that banks are heavily financed by debt sources of finance. It is also revealed that bank expansion to attract deposits through branch network and various products are important in shaping the capital structure. Deposits are cheap sources of finance for commercial banks. Based on the bank size model, it was revealed that the size of the bank has impact on capital structure of the bank which was measured by leverage ratio. Foreign banks have more been found to have impact on their leverage as compared to the local banks.