The concept of risk sharing is a key feature that distinguished Islamic from conventional banking. Islamic joint venture (IJV) finance  is perhaps the best example, but Islamic banks (IBs) in practice seem to prefer more conventional looking debt contracts.

A paper written by Azmat et al (2015)  focuses on

1.Dominance of debt products by Islamic banks using theoretical models

2.Considers asymmetric information, bank depositors, contracts and legal punishments

3.Adverse selection is the biggest impediment to Islamic bank's use of IJV (Islamic Joint Venture) financing.

4.With symmetric information borrowing firm maximises profit through debt contracts.

5.Islamic bank depositors may be a reason for the lack of IJV finance offered by Islamic banks.

This paper questioned whether Islamic banks would be likely to offer more profit and loss sharing(Musharakah/Mudarabah) type contracts and therefore to be considered more Islamic rather than continuing with their predominantly trade or debt styled contracts (Murabaha).

In Islam, the concept of 'Riba' (usury, excessive profit) is generally termed as the act of creating value out of nothing, IE charging customers for an abstract, made-up value, which is the crux of the issue with conventional finance as customers are charged an interest rate (a made up value?) over the borrowed money they take. This practice is what leads conventional banks to be labeled un-Islamic. However, conventional banking practices are widespread and the modern rise of Islamic banking has borrowed, if not copied outright, elements of conventional finance. So instead of interest rates, we have profit shares, instead of principal repayments, we have asset sales-hire purchases. By the end of the day, the financial impact is more or less the same, just the nomenclature is different. That being said, Islamic finance (at least how I understand it) often requires a physical, tangible asset which can be securitised (making it less risky than conventional finance in general). However, to answer if Islamic banks can ever be Islamic? Well, I think that's really a personal question and is up to your personal beliefs as a Muslim to determine what is best for you.

Islamic bank in current form cannot be 100% pure Islamic, since it still use fiat money and apply fractional reserve banking system. Contracts can be purufied, but convert to intrinsic money needs International cooperation, while convert to 100% banking system needs to have new 'Islamic' Basel different from Basel III.

A bank can be Islamic if it follows the Sharia (Islamic rules). I think it is difficult, probably extremely difficult, but not impossible.

Thank you all for you insightful replies. I can not disagree that Islamic banking is still at infant stage compare to the conventional counterpart. At the same time, I strongly believe that the current practice of Islamic Banks is just an important stage in evolution and is transitory.

Moreover, it is true that we can not establish true Islamic banks under the existing Economic system (fractional reserve banking, apathy for risk-taking/sharing contracts...)  where interest rates play the key role. 

Also, for establishing true Islamic banks mindset of the people, so-called rational economic man, need to be changed and people need to be educated, most importantly our young generation. 

I noticed that some Islamic organizations started to follow-up the issue of applying the Sharia (Islamic rules) in Islamic banks...let's see the outcome.

I agree with the views raised above, particularly the fact that our banking system is only one component of the wide economic system, and it is a journey to transition towards becoming 'fully Islamic'. Nonetheless, I also think that at an entity level, when banks claim they are 'Islamic Financial Institutions', the appreciation to the spirit and principles of Islam could be strengthened.  Currently, there is a lot of focus on ensuring transactions are in compliant to the standards imposed by the regulators and preventing non shariah compliant events. However, it seems that the wider objective and motivation for operating the IFI is still merely for profits instead of emphasizing other Islamic principles. I feel that this, too, is a hindrance towards us shifting to an 'Islamic' banking sector in its true essence.

I think Islamic banks follow some of the traditional banking operations in order to survive. They know they cannot survive with absolute Islamic operations alone due to the fact they have depositors who expect some return on their deposits, in addition to other expenditures. That's why they cannot go 100% Islamic...at least for the time being.

You can get some insights from these articles:

http://www.sciencedirect.com/science/article/pii/S0927538X15000359

http://www.mbri.ac.ir/userfiles/file/Islamic%20Banking/%D8%A8%D8%A7%D9%86%DA%A9%20%D9%85%D9%82%D8%A7%D9%84%D8%A7%D8%AA/Principals%20of%20Islamic%20banking%20and%20finance/How%E2%80%98Islamic%E2%80%99isIslamicBankig.pdf

Unfortunately, current development of Islamic bank is not moving closer to the ideals, but it is moving away from the ideals.

This development trend should be reversed. Or, create new Islamic institution other than bank.

Till now, we cannot say that Islamic banks follow Sharia as it should be. Will they be able and willing to do that in the future, let's wait and see.

If the disappearance of moral hazard ! 

Ideally, Islamic banking approach should be "Asset Driven" and "Allocation of Fund". However, current practice of Islamic banking follows "Liability Driven" and "Pooling of Fund" approach just like conventional banking.

One alternative intermediate solution would be managing cash waqf fund, which is perpetual and always increasing, in its liabilities (as Waqf Investment Deposits or Waqf Equity). This waqf fund features "Allocation of Fund" characteristics. it will dramatically decrease mismatch, bubble and liquidity risk. It will shifts the "pool of fund" paradigm to "mixed fund" (poolin of fund and allocation of fund) paradigm.

I agree with Dr. Ascarya's comments about "Asset Driven" and "Allocation of Fund" vs. "Liability Driven" and "Pooling of Fund" approaches. And also believe that Islamic banks (IBs) can be Islamic it there is true intentions behind. But at current stage, there is no real push in that direction and there is more observation of Islamic banks' convergence with conventional ones. However, if IBs become really Islamic, I doubt if they can really be called banks since their functions and operations would be significantly different from those of current Islamic or conventional banks.

The short answer is ‘No’.

The long answer is in these questions: Could you survive your business without a revenue, as well as this; could you promote your business?

Another question: In today’s competitive market how do you overcome your expenses and sunk cost?

To be honest Islamic bank resources are coming from both western resources and unlimited oil/mineral incomes.

We need to innovative instruments to create “added value” and getting out of capitalist survey in banking and back to Islamic finance.

I agree with many others. The correct answer is NO. Actually by introducing islamic banking Muslim scholars are trying to turn the society towards shairah law as much as possible. Something is better than nothing, thus as much as possible it is being tried.

For example in sukuk, although issuance is being done as per shairah but most of the companies isssuing sukuk deal in interest on daily basis in their business. I am sure 0.0001% companies on the planet exists which dont deal in interest.