* Chair McFarlane to retire on Dec. 14

* Gregg is veteran director, former investment banker

* Gregg comes in as banks face interest rate squeeze

Oct 16 (Reuters) - Australian lender Westpac said on Monday it has tapped Ampol chairman Steven Gregg to take over as chairman, replacing veteran banker John McFarlane who will complete his term on Dec. 14.

Gregg, a former investment banker, joins Australia's second-biggest lender at a time when banks are facing pressure to maintain profit margins as high interest rates make their costs harder to contain costs while squeezing demand for mortgages.

"I don't envy the next chairman at all with what I see coming towards Westpac and other Australian banks with the current interest rates," said Brad Smoling, managing director at Smoling Stockbroking.

"We may look back at this move by McFarlane as a very wise one indeed," added Smoling.

Gregg has been chairman of Australia's top fuel supplier Ampol since 2017 and of ASX-listed Lottery Corporation , a position he will retire from in the first quarter of 2024. He plans to remain chairman at Ampol.

"Steven is a world-class executive and director who will bring a fresh perspective to the board," said Westpac's outgoing chairman McFarlane, who flagged last December that he planned to retire.

McFarlane, who previously served as group chairman of UK lender Barclays PLC and ran rival Australian bank ANZ Group for almost a decade, joined Westpac as chair in 2020 when it was reeling from an anti-money laundering scandal.

The Australian government's financial intelligence agency, AUSTRAC had then accused the lender of failing to report more than 19.5 million international fund transfers after which Westpac paid an A$1.3 billion ($819.26 million)penalty.

The regulatory scandal forced the resignation of then company chief Brian Hartzer and former chairman Lindsay Maxsted.

($1 = 1.5868 Australian dollars) (Reporting by Rishav Chatterjee in Bengaluru; Editing by Sandra Maler, Deepa Babington and Sonali Paul)