MOSCOW • The bank that financed the grandest ambitions of Russian President Vladimir Putin is running out of cash.

Vnesheconombank (VEB), which underwrote mega-projects such as the Sochi Winter Olympics and secret aid to allies in Ukraine, is dumping assets at fire-sale prices and relying on emergency government assistance to avoid default.

It has virtually stopped new lending and cut off financing to most existing projects, according to two people close to the bank.

VEB's travails are the latest reversal for the Putin system, hit by the plunge in oil prices and sanctions by the United States and the European Union.

Tight state control and reliance on cheap market funding made VEB the hallmark of the boom years. Now, with the price tag for its bailout rising above initial estimates of 1.3 trillion roubles (S$26.7 billion), top officials are considering shrinking the bank to a shadow of its former self, according to four people involved in the discussions.

Mr Putin recognises that there is no alternative to deep cuts, one of them said. All spoke on condition that they not be identified.

"VEB faces a future over the medium term of dealing with the problems created in the past," said Mr Vladimir Tikhomirov, chief economist at BCS Financial Group, a Moscow brokerage. "That means only one thing - it will shrivel up."

VEB's problems mirror those of Russia's economy.

Short of cash and isolated internationally, the Kremlin must increasingly rely on its own limited resources to revive growth.

"In its current form, VEB is a quasi-budget fund for financing priority projects," said Ms Karen Vartapetov, an analyst at S&P. "This business model effectively requires constant support from the Budget."

A new management team is cutting staff by about 20 per cent and has given up its private jets and limousines. It is dropping a range of projects picked up during the fat years, including a pair of failing commercial banks.

The Kremlin did not respond to a request for comment. VEB's press service said the bank has not frozen investment activity but declined to provide details.

VEB was turned into a pillar of Mr Putin's Kremlin-driven economy at the height of the oil boom starting in 2007. He pumped tens of billions of dollars into it and took personal control over key lending decisions.

VEB's assets grew more than seven-fold to more than 4 trillion roubles as Mr Putin channelled the funds into high-profile projects and bailouts too risky for other banks. That came to an abrupt halt when VEB was hit with international sanctions in 2014 over the Ukraine crisis, cutting off its access to Western markets. A recession exposed many of its investments - including failing banks, construction projects and ski resorts - as money-losers.

VEB needs about 560 billion roubles this year just to cover its foreign debt payments, as well as other obligations.

BLOOMBERG