Bahrain banks need to focus on large infrastructure projects planned in the Gulf region to achieve significant growth, say analysts.

Gulf 's need to finance hundreds of billions in infrastructure and energy projects is seen as the most promising next market for Bahraini banks, but it will need years to build expertise, according to financial experts.

'Definitely there is a need for that, maybe it won't get you 40 percent return as an investor, but the need is there,” said Salman Al Khalifa, regional head of financial institutions at BNP Paribas.

But the Gulf region, including Bahrain, has yet to build up a powerful fund industry that could cater to that demand, as regional investors prefer to invest directly in equity.

Bahrain, which has a population of just over one million, has established itself as a financial hub catering to the world's top oil exporting region thanks to its liberal regulatory environment which allows hundred percent foreign ownership.

The financial industry accounts for 25 per cent of Bahrain's GDP and is an important provider of jobs. Assets of Bahraini banks grew more than three-fold between 2002 and 2008 to $252 billion, but have since fallen to $224 billion as of March.

During the five-year regional oil and property boom that ended in 2008, many Islamic investment houses, which depended on upfront fees on money raised for property and private equity projects, opened in the kingdom.

Bankers and analysts say the country's financial industry faces years of limited growth as this business model has been swept away by the crisis and retail banking is overcrowded in Bahrain and elsewhere in the region.

Debt troubles at Gulf Finance House has shown that the sector was overexposed to regional real estate.

Building up an asset management and project finance base by designing products Bahrain's real-estate spoiled banks are not used to will be laborious and require time, bankers said.

Several Western bankers and consultants have left Bahrain this spring to offer their services from Switzerland or London instead, from where the Gulf's wealth can also be catered to.

Bankers said plans by some Bahraini banks to build up asset management, which could cater to the region's small but growing insurance and Islamic insurance industries and create more stable revenue streams, would take time.

'Bahrain still has proximity to the investors....but what they lack is a deep, rich basis for professional asset management. They permitted investment banking to take all the honey,' said Geneva-based John Sandwick, a consultant on Islamic wealth and asset management.

A banker said international banks are increasingly sending their teams directly into each country of the region, in particular to Saudi Arabia, instead of entertaining hubs in Bahrain or the Dubai International Financial Centre (DIFC).

Neighbouring Qatar, the world's largest exporter of liquefied natural gas, had to scale down its ambitions to become a regional financial hub, now also focusing on attracting asset management and insurance business. – Reuters