While CBA ponders its strategic options in WA's difficult banking environment, there is still no clear sign that a recent uptick in the Perth jobs market is translating into lower impairment rates for lenders.In an interview with Banking Day, P&N Bank chief executive Andrew Hadley revealed that the mutual's full year accounts are likely to show delinquency rates on home lending breached one per cent in the financial year that ends this month."We've seen a marginal tick up in delinquencies," Hadley told Banking Day."The rate of thirty-plus days delinquencies is just sitting over one per cent of our loan book. "That's up marginally on last year."While Hadley conceded that the delinquency rate was high by national standards, he said it was in line with other lenders focused on the WA market.Hadley said the challenging banking environment in WA over the last three years would likely start to improve in coming months.P&N is the largest WA-owned lender and deposit-taker but Hadley said the company was eyeing "partnerships or mergers" with customer-owned banks in other states to help it compete against the major banks."We're always open to having conversations with like-minded organisations," he said."It's not dominating our attention but it's something we're giving thought to."Hadley observed that the many hundreds of customer-owned institutions in Australia had reduced to about eighty following intense merger activity in the last decade.He expects the trend to continue."There won't be eighty in five years' time so it would be irrational for us not to be exploring what options are out there."Hadley said economies of scale and diversifying geographical loan risk were potential benefits of a merger for P&N.He also said his organisation was assessing the possibility of taking on the major banks in small business lending over the next 12 months.Hadley believes P&N has big opportunity to find a niche lender to SMEs."That's topical for us at the moment," he said."We see an opportunity because the competition in WA is not doing a great job."P&N is keeping close tabs on where CBA decides to go with its Bankwest arm. A large branch closure program could potentially deliver customers to regionally focused institutions, especially if the Bankwest brand takes a reputational hit or suffers political fallout.However,Hadley attaches more importance to prospective regulatory reform as a key to improving the competitiveness of mutual banks in WA."We would like to see the federal government remove restrictions imposed on customer-owned banks getting access to capital," he said."For a small organisation like ours the cost of compliance is disproportionately higher."Spurred by growth through mortgage brokers, P&N grew its mortgage book by 20 per cent in 2016.That slowed to around eight per cent in the year about to end, Hadley said.